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H.R. 13511 (95th): Revenue Act

The text of the bill below is as of Nov 6, 1978 (Passed Congress).


PUBLIC LAW 95-600—NOV. 6, 1978                                        92 STAT. 2763

Public Law 95-600
95th Congress
                                     An Act
To amend the Internal Revenue Code of 1954 to reduce income taxes, and                      Nov. 6, 1978
                          for other purposes.                                               [H.R. 13511]
 Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,                  Revenue Act of
                                                                                           1Q78
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
  (a) SHORT TITLE.—This Act may be cited as the "Revenue Act of 26 use i note.
1978".
   (b) TABLE OF CONTENTS.—
Sec. 1. Short title; table of contents.
Sec. 2. Amendment of 1954 Code.
Sec. 3. Policy with respect to additional tax reductions.

 TITLE I-PROVISIONS PRIMARILY AFFECTING INDIVIDUAL INCOME TAX

                     Subtitle A—Tax Reductions and Extensions
Sec. 101. Widening of brackets; rate cuts in certain brackets; increase In zero
            bracket amounts.
Sec. 102. Personal exemptions increased to $1,000.
Sec. 103. Earned income credit made permanent.
Sec. 104. Increase in and simplification of the earned income tax credit.
Sec. 105. Advance payment of earned income credit.
Sec. 106. Application of certain changes in the case of fiscal year taxpayers.

                          Subtitle B—Itemized Deductions
Sec. 111. Repeal of nonbusiness deduction for State and local taxes on gasoline and
            other motor fuels.
Sec. 112. Unemployment compensation.

                                 Subtitle C—Credits
Sec. 121. Payments to related individuals under child care credit.

                         Subtitle D—Deferred Compensation

                    PART I—DEFERRED COMPENSATION PROVISIONS

Sec. 131. Deferred compensation plans with respect to service for State and local
            governments.
Sec. 132. Certain private deferred compensation plans.
Sec. 133. Clarification of deductibility of payments of deferred compensation, etc., to
            independent contractors.
Sec. 134. Tax treatment of cafeteria plans.
Sec. 135. Certain cash or deferred arrangements.

                    PART II—EMPLOYEE STOCK OWNERSHIP PLANS

Sec. 141. ESOPS.
Sec. 142. Certain lump sum distributions excluded from gross estate where recipi-
            ent elects not to apply 10-year averaging.
Sec. 143. Qualified plans required to pass through voting rights on employer
            securities.

92 STAT. 2764 PUBLIC LAW 95-600—NOV. 6, 1978 Subtitle E—Retirement Plans Sec. 152. Simplified employee pensions. Sec. 153. Defined benefit plan limits. Sec. 154. Custodial accounts for regulated investment company stock. Sec. 155. Pension plan reserves. Sec. 156. Rollover of section 403(b) annuities permitted. Sec. 157 Individual retirement account technical changes. , Subtitle F—Other Individual Items Sec. 161. Certain Government scholarship and award programs. Sec. 162. Cancellation of student loans. Sec. 163. Tax counseling for the elderly. Sec. 164. Exclusion of value of certain educational assistance programs. TITLE I I - T A X SHELTER PROVISIONS Subtitle A—Provisions Related to At Risk Rules Sec. 201. Extension of section 465 at risk rules to all activities other than real estate. Sec. 202. Extension of at risk provisions to closely held corporations. ^ Sec. 203. Recapture of losses where amount at risk is less than zero. Sec. 204. Effective dates. Subtitle B—Partnership Provisions Sec. 211. Penalty for failure to file partnership return. Sec. 212. Extension of statute of limitations in the case of partnership items. TITLE III—PROVISIONS PRIMARILY AFFECTING BUSINESS INCOME TAX Subtitle A—Corporate Rate Reductions Sec. 301. Corporate rate reductions. Subtitle B—Credits Sec. 311. 10-percent investment tax credit and $100,000 limitation on used property made permanent. Sec. 312. Increase in limitation on investment credit to 90 percent of tax liability. Sec. 313. Investment credit for pollution control facilities. Sec. 314. Investment credit for certain single purpose agricultural or horticultural structures. Sec. 315. Investment credit allowed for certain rehabilitated buildings. Sec. 316. Tax treatment of the investment credit in the case of cooperative organi- zations. Sec. 317. Transfers to ConRail not treated as dispositions for purposes of the invest- ment credit. Subtitle C—Targeted Jobs Credit; WIN Credit Sec. 321. Targeted jobs credit. Sec. 322. Work incentive program credit changes. . ' Subtitle D—Tax Exempt Bonds PART I—INDUSTRIAL DEVELOPMENT BONDS Sec. 331. Increase in limit on small issues of industrial development bonds. Sec. 332. Local furnishing of electric energy. * Sec. 333. Industrial development bonds for water facilities. Sec. 334. Advance refunding of industrial development bonds for qualified public facilities. PART II—OTHER TAX-EXEMPT BOND PROVISIONS Sec. 336. Declaratory judgment procedure for judicial review of determinations re- lating to governmental obligations. Sec. 337. Disposition of amounts generated by advance refunding of certain govern- mental obligations.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2765 Subtitle E—Small Business Provisions PART I—PROVISIONS REIATING TO SUBCHAPTER S Sec. 341. Subchapter S corporations allowed 15 shareholders. Sec. 342. Permitted shareholders of subchapter S corporations. Sec. 343. Extension of period for making subchapter S elections. Sec. 344. Effective date. PART II—OTHER PROVISIONS J Sec. 345. Small business corporation stock. Subtitle F—Accounting Provisions Sec. 351. Treatment of certain closely held farm corporations for purposes of rule requiring accrual accounting. Sec. 352. Accounting for growing crops. Sec. 353. Treatment of certain farms for purposes of rule requiring accrual accounting. Subtitle G—Other Business Provisions Sec. 361. Disallowance of certain deductions for yachts, hunting lodges, etc. Sec. 362. Deficiency dividend procedure for regulated investment companies. Sec. 363. Real estate investment trust provisions. Sec. 364. Contributions in aid of construction. Sec. 365. Liabilities of controlled corporations. Sec. 366. Medical expense reimbursement plans. Sec. 367. Three-year extension of provision for 60-month depreciation of expendi- tures to rehabilitate low-income rental housing. Sec. 368. Delay in application of new net operating loss rules. Sec. 369. Use of certain expired net operating loss carryovers. Sec. 370. Income from certain railroad rolling stock treated as income from sources within the United States. Sec. 371. Net operating losses attributable to product liability losses. Sec. 372. Exclusion from gross income with respect to magazines, paperbacks, and records returned after the close of the taxable year. Sec. 373. Qualified discount coupons redeemed after close of taxable year. TITLE IV—CAPITAL GAINS; MINIMUM TAX; MAXIMUM TAX Subtitle A—Capital Gains Sec. 401. Repeal of alternative tax on capital gains of individuals. Sec. 402. Increased capital gains deductions for individuals. Sec. 403. Reduction of alternative capital gains tax for corporations. Sec. 404. One-time exclusion of gain from sale of principal residence by individual who has attained age 55. Sec. 405. Waiver of certain 18-month rules of section 1034 when sale of residence is connected with commencing work at new place. Subtitle B—Minimum Tax Provisions Sec. 421. Alternative minimum tax for taxpayers other than corporations. Sec. 422. Treatment of intangible drilling cost for purposes of the minimum tax. Subtitle C—Maximum Tax Provisions Sec. 441. Treatment of capital gains for purposes of the maximum tax. Sec. 442. Determination of personal service income from nonsalaried trade or busi- ness activities.
92 STAT. 2766 PUBLIC LAW 95-600—NOV. 6, 1978 TITLE V—OTHER TAX PROVISIONS Subtitle A—Administrative Provisions Sec. 501. Reporting requirements with respect to charged tips. Sec. 502. Extension of optional small tax case procedures and expansion of authority of commissioners of Tax Court. Sec. 503. Disclosure of return information to certain Federal officers and employees for purposes of tax administration, etc. Sec. 504. Refund adjustments for amounts held under claim of right. Subtitle B—Estate and Gift Tax Provisions Sec. 511. Reduction of value taken into account for estate tax purposes where spouse of decedent materially participated in farm or other business. Sec. 512. Treatment of certain interests held by decedent's family for purposes of the extension of time for payment of estate tax provided by section 6166. Sec. 513. Subordination of special liens for additional estate tax attributable to farm, etc., valuation. Sec. 514. Amendment of governing instruments to meet requirements for gifts of split interest to charity. Sec. 515. Deferral of carryover basis rules. Subtitle C—Other Excise Tax Provisions Sec. 520. Reduction of administration tax on private foundations. Sec. 521. Excise tax on certain gaming devices. Sec. 522. Treatment of certain private foundations for purposes of section 4942. Subtitle D—Income Tax Provisions Sec. 530. Controversies involving whether individuals are employees for purposes of the employment taxes. Sec. 531. Certain original stockholders of cooperative housing corporations. Subtitle E—Other Income Tax Provisions Sec. 540. Deposits in certain branches of Puerto Rican savings and loan associa- tions. Sec. 541. Taxation of Alaska Native Claims Settlement Act corporations. Sec. 542. Replacement of livestock with other farm property where there has been environmental contamination. Sec. 543. Certain payments not included in gross income. Subtitle F—Studies Sec. 551. Study of simplification of tax returns. Sec. 552. Study of tax incentives for expenditures required by Occupational Safety and Health Administration and Mining Health and Safety Adminis- tration. Sec. 553. Study of taxation of nonresident alien real estate transactions in the United States. Sec. 554. Report on effectiveness of jobs credit. Sec. 555. Study of effects of changes in the tax treatment of capital gains on stimu- lating investment and economic growth. TITLE VI—GENERAL STOCK OWNERSHIP CORPORATIONS Sec. 601. Establishment and taxation of general stock ownership corporations and their shareholders. TITLE VII—TECHNICAL CORRECTIONS OF THE TAX REFORM ACT OF 1976 Sec. 701. Technical amendments to income tax provisions and administrative provisions. Sec. 702. Technical, clerical, and conforming amendment to estate and gift tax provisions. Sec. 703. Corrections of punctuation, spelling, incorrect cross references, etc.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2767 TITLE VIII—AMENDMENTS RELATING TO SOCIAL SECURITY ACT Sec. 801. Grants to States for social services. Sec. 802. Change in public assistance matching formula, and increase in amount of public assistance dollar limitations, for Puerto Rico, the Virgin Islands, and Guam in fiscal year 1979. SEC. 2. AMENDMENT OF 1954 CODE. Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be consid- ered to be made to a section or other provision of the Internal Revenue Code of 1954. 26 use l et seq. SEC. 3. POLICY WITH RESPECT TO ADDITIONAL TAX REDUCTIONS. As a matter of national policy the rate of growth in Federal outlays, 26 USC l note. adjusted for inflation, should not exceed 1 percent per year between fiscal year 1979 and fiscal year 1983; Federal outlays as a percentage of gross national product should decline to below 21 percent in fiscal year 1980, 20.5 percent in fiscal year 1981, 20 percent in fiscal year 1982 and 19.5 percent in fiscal year 1983; and the Federal budget should be balanced in fiscal years 1982 and 1983. If these conditions are met, it is the intention that the tax-writing committees of Congress will report legislation providing significant tax reductions for individuals to the extent that these tax reductions are justified in the light of prevailing and expected economic conditions. TITLE I—PROVISIONS PRIMARILY AFFECTING INDIVIDUAL INCOME TAX Subtitle A—Tax Reductions and Extensions SEC. 101. WIDENING OF BRACKETS; RATE CUTS IN CERTAIN BRACKETS; INCREASE IN ZERO BRACKET AMOUNTS. (a) RATE REDUCTION.—Section 1 (relating to tax imposed) is 26 USC l. amended to read as follows: "SECTION 1. TAX IMPOSED. "(a) MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES.—There is hereby imposed on the taxable income of— "(1) every married individual (as defined in section 143) who makes a single return jointly with his spouse under section 6013, and "(2) every surviving spouse (as defined in section 2(a)), a tax determined in accordance with the following table: "If taxable income is: The tax is: Not over $3,400 No Tax. Over $3,400 but not over $5,500 14% of excess over $3,400. Over $5,500 but not over $7,600 $294, plus 16% of excess over $5,500. Over $7,600 but not over $11,900 $630, plus 18% of excess over $7,600. Over $11,900 but not over $16,000 $1,404, plus 21% of excess over $11,900. Over $16,000 but not over $20,200 $2,265, plus 24% of excess over $16,000. Over $20,200 but not over $24,600 $3,273, plus 28% of excess over $20,200. Over $24,600 but not over $29,900 $4,505, plus 32% of excess over $24,600. Over $29,900 but not over $35,200 $6,201, plus 37% of excess over $29,900. Over $35,200 but not over $45,800 $8,162, plus 43% of excess over $35,200. Over $45,800 but not over $60,000 $12,720, plus 49% of excess over $45,800.
92 STAT. 2768 PUBLIC LAW 95-600—NOV. 6, 1978 "If taxable income is: The tax is: Over $60,000 but not over $85,600 $19,678, plus 54% of excess over $60,000. Over $85,600 but not over $109,400 $33,502, plus 59% of excess over $85,600. Over $109,400 but not over $162,400. $47,544, plus 64% of excess over $109,400. Over $162,400 but not over $215,400. $81,464, plus 68% of excess over $162,400. Over $215,400 $117,504, plus 70% of excess over $215,400. "(b) HEADS OF HOUSEHOLDS.—There is hereby imposed on the taxable income of every individual who is the head of a household (as defined in section 2(b)) a tax determined in accordance with the following table: "If taxable income is: The tax is: Not over $2,300 No tax. Over $2,300 but not over $4,400 14% of excess over $2,300. Over $4,400 but not over $6,500 $294, plus 16% of excess over $4,400. Over $6,500 but not over $8,700 $630, plus 18% of excess over $6,500. Over $8,700 but not over $11,800 $1,026, plus 22% of excess over $8,700 Over $11,800 but not over $15,000$1,708, plus 24% of excess over $11,800 Over $15,000 but not over $18,200$2,476, plus 26% of excess over $15,000 Over $18,200 but not over $23,500$3,308, plus 31% of excess over $18,200, Over $23,500 but not over $28,800$4,951, plus 36% of excess over $23,500, Over $28,800 but not over $34,100$6,859, plus 42% of excess over $28,800 Over $34,100 but not over $44,700$9,085, plus 46% of excess over $34,100, Over $44,700 but not over $60,600$13,961, plus 54% of excess over $44,700. Over $60,600 but not over $81,800 $22,547, plus 59% of excess over $60,600. Over $81,800 but not over $108,300 $35,055, plus 63% of excess over $81,800. Over $108,300 but not over $161,300. $51,750, plus 68% of excess over $108,300. Over $161,300 $87,790, plus 70% of excess over $161,300. "(c) UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES AND HEADS OF HOUSEHOLDS).—There is hereby imposed on the tax- able income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 143) a tax determined in accordance with the following table: "If taxable income is: The tax is: Not over $2,300 No tax. Over $2,300 but not over $3,400 14% of excess over $2,300. Over $3,400 but not over $4,400 $154, plus 16% of excess over $3,400. Over $4,400 but not over $6,500 $314, plus 18% of excess over $4,400. Over $6,500 but not over $8,500 $692, plus 19% of excess over $6,500. Over $8,500 but not over $10,800 $1,072, plus 21% of excess over $8,500 Over $10,800 but not over $12,900 $1,555, plus 24% of excess over $10,800 Over $12,900 but not over $15,000 $2,059, plus 26% of excess over $12,900 Over $15,000 but not over $18,200 $2,605, plus 30% of excess over $15,000 Over $18,200 but not over $23,500 $3,565, plus 34% of excess over $18,200 Over $23,500 but not over $28,800 $5,367, plus 39% of excess over $23,500 Over $28,800 but not over $34,100 $7,434, plus 44% of excess over $28,800 Over $34,100 but not over $41,500 $9,766, plus 49% of excess over $34,100 Over $41,500 but not over $55,300 $13,392, plus 55% of excess over $41,500. Over $55,300 but not over $81,800 $20,982, plus 63% of excess over $55,300. Over $81,800 but not over $108,300 $37,677, plus 68% of excess over $81,800.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2769 "If taxable income is: The tax is: Over $108,300 $55,697, plus 70% of excess over $108,300. "(d) MARRIED INDIVIDUALS FILING SEPARATE RETURNS.—There is hereby imposed on the taxable income of every married individual (as defined in section 143) who does not make a single return jointly with his spouse under section 6013 a tax determined in accordance with the following table: "If taxable income is: The tax is: Not over $1,700 No tax. Over $1,700 but not over $2,750 14% of excess over $1,700. Over $2,750 but not over $3,800 $147, plus 16% of excess over $2,750. Over $3,800 but not over $5,950 $315, plus 18% of excess over $3,800. Over $5,950 but not over $8,000 $702, plus 21% of excess over $5,950. Over $8,000 but not over $10,100 $1,132.50, plus 24% of excess over $8,000. Over $10,100 but not over $12,300 $1,636.50, plus 28% of excess over $10,100. Over $12,300 but not over $14,950 $2,252.50, plus 32% of excess over $12,300. Over $14,950 but not over $17,600 $3,100.50, plus 37% of excess over $14,950. Over $17,600 but not over $22,900 $4,081, plus 43% of excess over $17,600. Over $22,900 but not over $30,000 $6,360, plus 49% of excess over $22,900. Over $30,000 but not over $42,800 $9,839, plus 54% of excess over $30,000. Over $42,800 but not over $54,700 $16,751, plus 59% of excess over $42,800. Over $54,700 but not over $81,200 $23,772, plus 64% of excess over $54,700. Over $81,200 but not over $107,700 $40,732, plus 68% of excess over $81,200. Over $107,700 $58,752, plus 70% of excess over $107,700. "(e) ESTATES AND TRUSTS.—There is hereby imposed on the taxable income of every estate and trust taxable under this subsection a tax determined in accordance with the following table: "If taxable income is: The tax is: Not over $1,050 14% of taxable income. Over $1,050 but not over $2,100 $147, plus 16% of excess over $1,050. Over $2,100 but not over $4,250 $315, plus 18% of excess over $2,100. Over $4,250 but not over $6,300 $702, plus 21% of excess over $4,250. Over $6,300 but not over $8,400 $1,132.50 plus 24% of excess over $6,300. Over $8,400 but not over $10,600 $1,636.50, plus 28% of excess over $8,400. Over $10,600 but not over $13,250 $2,252.50, plus 32% of excess over $10,600. Over $13,250 but not over $15,900 $3,100.50, plus 37% of excess over $13,250. Over $15,900 but not over $21,200 $4,081, plus 43% of excess over $15,900. Over $21,200 but not over $28,300 $6,360, plus 49% of excess over $21,200. Over $28,300 but not over $41,100 $9,839, plus 54% of excess over $28,300. Over $41,100 but not over $53,000 $16,751, plus 59% of excess over $41,100. Over $53,000 but not over $79,500 $23,772, plus 64% of excess over $53,000. Over $79,500 but not over $106,000 $40,732, plus 68% of excess over $79,500. Over $106,000 $58,752, plus 70% of excess over $106,000.". (b) INCREASE IN ZERO BRACKET AMOUNT.—Subsection (d) of section 26 u s e 63. 63 (defining zero bracket amount) is amended— (1) by striking out "$3,200" and inserting in lieu thereof "$3,400", \
92 STAT. 2770 PUBLIC LAW 95-600—NOV. 6, 1978 (2) by striking out "$2,200" and inserting in lieu thereof "$2,300", and (3) by striking out "$1,600" and inserting in lieu thereof "$1,700". 26 use 6012. (c) FILING REQUIREMENTS.—Paragraph (1) of section 6012(a) (relat- ing to persons required to make returns of income) is amended— (1) by striking out "$2,950" and inserting in lieu thereof "$3,050", (2) by striking out "$3,950" and inserting in lieu thereof "$4,150", and (3) by striking out "$4,700" and inserting in lieu thereof "$4,900". (d) TECHNICAL AMENDMENTS.— 26 use 402. (1) Subparagraph (C) of section 402(e)(1) (relating to tax on lump sum distributions) is amended by striking out "$2,200" and inserting in lieu thereof "$2,300". 26 use 1302. (2) Paragraph (3) of section 1302(b) (relating to transitional rule for determining base period income) is amended to read as follows: "(3) TRANSITIONAL RULE FOR DETERMINING BASE PERIOD INCOME.—The base period income (determined under paragraph (2)) for any taxable year beginning before January 1, 1977, shall be increased by— "(A) $3,200 in the case of a joint return or a surviving 26 use 2. spouse (as defined in section 2(a)), "(B) $2,200 in the case of an individual who is not married (within the meaning of section 143) and is not a surviving spouse (as so defined), or "(C) $1,600 in the case of a married individual (within the 26 use 143. meaning of section 143) filing a separate return. For purposes of this paragraph, filing status shall be determined as of the computation year." (e) WITHHOLDING AMENDMENTS.— 26 use 3402. (1) WITHHOLDING TABLES.—Subsection (a) of section 3402 (relat- ing to requirement of withholding) is amended by striking out the second and third sentences and inserting in lieu thereof the following new sentence: "With respect to wages paid after December 31,1978, the tables so prescribed shall be the same as the tables prescribed under this subsection which were in effect on January 1, 1975, except that such tables shall be modified to the extent necessary to reflect the amendments made by sections 91 Stat. 127, 101 and 102 of the Tax Reduction and Simplification Act of 1977 ^^^- and the amendments made by section 101 of the Revenue Act of Ante, p. 2767. 1978.". (2) WITHHOLDING ALLOWANCES BASED ON ITEMIZED DEDUC- TIONS.—Subparagraph (B) of section 3402(m)(l) (relating to with- holding allowances based on itemized deductions) is amended— (A) by striking out "$3,200" and inserting in lieu thereof "$3,400", and (B) by striking out "$2,200" and inserting in lieu thereof "$2,300". (£) EFFECTIVE DATES.— 26 use 1 note. (1) I N GENERAL.—The amendments made by subsections (a), (b), (c), and (d) shall apply to taxable years beginning after Decem- ber 31,1978.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2771 (2) WITHHOLDING AMENDMENTS.—The amendments made by 26 USC 3402 subsection (e) shall apply to remuneration paid after Decem- "o*^- ber 31,1978. SEC. 102. PERSONAL EXEMPTIONS INCREASED TO $1,000. (a) GENERAL RULE.—Section 151 (relating to allowance of deduc- 26 USC 151. tions for personal exemptions) is amended by striking out "$750" each place it appears and inserting in lieu thereof "$1,000". (b) FILING REQUIREMENTS.— (1) Paragraph (1) of section 6012(a) (relating to persons 26 USC 6012. required to make returns of income) as amended by section 101(c) of this Act, is amended by striking out "$750", "$3,050", "$4,150", and "$4,900" each place they appear and inserting in lieu thereof "$1,000", "$3,300", "$4,400", and "$5,400", respectively. (2) Subparagraph (A) of section 6013(b)(3) (relating to assess- 26 USC 6013. ment and collection in the case of certain returns of husband and wife) is amended by striking out "$750" and "$1,500" each place they appear and inserting in lieu thereof "$1,000" and "$2,000", respectively. (c) WITHHOLDING REQUIREMENTS.— (1) Paragraph (1) of section 3402(b) (relating to percentage 26 USC 3402. method of withholding income tax at source) is amended by striking out the table and inserting in lieu thereof the following: "Percentage Method Withholding Table Amount of one "Payroll period withholding exemption Weekly $19.23 Biweekly 38.46 Semimonthly 41.66 Monthly 83.33 Quarterly 250.00 Semiannual 500.00 Annual 1,000.00 Daily or miscellaneous (per day of such period) 2.74" (2) Paragraph (1) of section 3402(m) (relating to withholding allowances based on itemized deductions) is amended by striking out "$750" and inserting in lieu thereof "$1,000". (d) EFFECTIVE DATES.— (1) IN GENERAL.—The amendments made by subsections (a) and 26 USC 151 (b) shall apply to taxable years beginning after December 31, "ote. 1978. (2) WITHHOLDING AMENDMENTS.—The amendments made by 26 USC 3402 subsection (c) shall apply with respect to remuneration paid after °°t®- December 31,1978. SEC. 103. EARNED INCOME CREDIT MADE PERMANENT. (a) GENERAL RULE.—Subsection (b) of section 209 of the Tax Reduction Act of 1975 is amended by striking out ", and before 26 USC 43 noti; January 1,1979". (b) TECHNICAL AMENDMENT.—The second sentence of section 401(e) of the Tax Reform Act of 1976 (as added by section 103 of the Tax 26 USC 42 note Reduction and Simplification Act of 1977) is amended by striking out **, and shall cease to apply to taxable years beginning after Decem- ber 31,1978".
92 STAT. 2772 PUBLIC LAW 95-600—NOV. 6, 1978 SEC. 104. INCREASE IN AND SIMPLIFICATION OF THE EARNED INCOME TAX CREDIT. 26 use 43. (a) INCREASE IN CREDIT.—Subsection (a) of section 43 (relating to earned income credit) is amended— (1) by striking out "chapter" and inserting in lieu thereof "subtitle", and (2) by striking out "$4,000" and inserting in lieu thereof "$5,000". (b) REVISION OF THE LIMITATION.—Subsection Ob) of section 43 is amended to read as follows: "(b) LIMITATION.—The amount of the credit allowable to a taxpayer under subsection (a) for any taxable year shall not exceed the excess (if any) of— "(1) $500, over "(2) 12.5 percent of so much of the adjusted gross income (or, if greater, the earned income) of the taxpayer for the taxable year as exceeds $6,000.". (c) AMOUNT OF CREDIT TO B E DETERMINED UNDER TABLES.-=-Section 43 is amended by adding at the end thereof the following new subsection: "(f) AMOUNT OF CREDIT TO B E DETERMINED UNDER TABLES,— "(1) I N GENERAL.—The amount of the credit allowed by this section shall be determined under tables prescribed by the Secretary. "(2) REQUIREMENTS FOR TABLES.—The tables prescribed under paragraph (1) shall reflect the provisions of subsections (a) and (b) and shall have income brackets of not greater than $50 each— "(A) for earned income between $0 and $10,000, and "(B) for adjusted gross income between $6,000 and $10,000.". (d) EXCLUDABLE EARNED INCOME TAKEN INTO ACCOUNT.—Subpara- graph (B) of section 43(c)(2) (defining earned income) is amended by striking out clause (i) and by redesignating clauses (ii), (iii), and (iv) as clauses (i), (ii), and (iii), respectively. (e) DEFINITION OF ELIGIBLE INDIVIDUAL.—Paragraph (1) of section 43(c) (defining eligible individual) is amended to read as follows: "(1) ELIGIBLE INDIVIDUAL.— "(A) IN GENERAL.—The term 'eligible individual' means an individual who, for the taxable year— 26 use 143. "(i) is married (within the meaning of section 143) and 26 use 151. is entitled to a deduction under section 151 for a child (within the meaning of section 151(e)(3)), "(ii) is a surviving spouse (as determined under section 26 use 2. 2(a)), or "(iii) is a head of a household (as determined under subsection (b) of section 2 without regard to subpara- graphs (A)(ii) and (B) of paragraph (1) of such subsec- tion). "(B) CHILD MUST RESIDE WITH TAXPAYER IN THE UNITED . ., STATES.—An individual shall be treated as satisfying clause (i) of subparagraph (A) only if the child has the same principal place of abode as the individual and such abode is . ^ in the United States. An individual shall be treated as satisfying clause (ii) or (iii) of subparagraph (A) only if the household in question is in the United States. "(C) INDIVIDUAL ENTITLED TO EXCLUDE INCOME UNDER SEC- 26 use 911. TION 911 NOT ELIGIBLE INDIVIDUAL.—The term 'eligible indi-
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2773 vidual' does not include an individual who, for the taxable year, is entitled to exclude any amount from gross income under section 911 (relating to earned income from sources 26 USC 911. without the United States) or section 931 (relating to income 26 USC 931. from sources within the possessions of the United States).", (f) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 43 notei. apply to taxable years beginning after December 31,1978. SEC. 105. ADVANCE PAYMENT OF EARNED INCOME CREDIT. (a) COORDINATION OF CREDIT WITH ADVANCE PAYMENTS.—Section 43 (relating to earned income credit) is amended by adding at the end 26 USC 43. thereof the following new subsection: "(h) COORDINATION WITH ADVANCE PAYMENTS OF EARNED INCOME CREDIT.— "(1) RECAPTURE OF EXCESS ADVANCE PAYMENTS.—If any pay- ment is made to the individual by an employer under section 3507 during any calendar year, then the tax imposed by this ^"/ra- chapter for the individual's last taxable year beginning in such calendar year shall be increased by the aggregate amount of such payments. "(2) RECONCIUATION OF PAYMENTS ADVANCED AND CREDIT ALLOWED.—Any increase in tax under paragraph (1) shall not be treated as tax imposed by this chapter for purposes of determin- ing the amount of any credit (other than the credit allowed by subsection (a)) allowable under this subpart.''. (b) ADVANCE PAYMENT OF EARNED INCOME CREDIT.— (1) I N GENERAL.—Chapter 25 (general provisions relating to employment taxes) is amended by adding at the end thereof the following new section: "SEC. 3507. ADVANCE PAYMENT OF EARNED INCOME CREDIT. 26 USC 3507. "(a) GENERAL RULE.—Except as otherwise provided in this section, every employer making payment of wages to an employee with respect to whom an earned income eligibility certificate is in effect shall, at the time of paying such wages, make an additional payment to such employee equal to such employee's earned income advance amount. "(b) EARNED INCOME ELIGIBILITY CERTIFICATE.—For purposes of this title, an earned income eligibility certificate is a statement furnished by an employee to the employer which— "(1) certifies that the employee will be eligible to receive the credit provided by section 43 for the taxable year, "(2) certifies that the employee does not have an earned income eligibility certificate in effect for the calendar year with respect to the payment of wages by another employer, and "(3) states whether or not the employee's spouse has an earned income eligibility certificate in effect. For purposes of this section, a certificate shall be treated as being in effect with respect to a spouse if such a certificate will be in effect on the first status determination date following the date on which the employee furnishes the statement in question. ' '(c) EARNED INCOME ADVANCE AMOUNT.— "(1) IN GENERAL.—For purposes of this title, the term 'earned income advance amount means, with respect to any payroll period, the amount determined— "(A) on the basis of the employee's wages from the employer for such period, and "(B) in accordance with tables prescribed by the Secretary.
92 STAT. 2774 PUBLIC LAW 95-600—NOV. 6, 1978 "(2) ADVANCE AMOUNT TABLES.—The tables referred to in paragraph (1)(B)— "(A) shall be similar in form to the tables prescribed under 26 use 3402. section 3402 and, to the maximum extent feasible, shall be coordinated with such tables, and "(B) if the employee is not married, or if no earned income eligibility certificate is in effect with respect to the spouse of Ante, pp. 2772, the employee, shall treat the credit provided by section 43 as 2773. if it were a credit— "(i) of not more than 10 percent of the first $5,000 of earned income, which "(ii) phases out between $6,000 and $10,000 of earned income, or "(C) if an earned income eligibility certificate is in effect with respect to the spouse of the employee, shall treat the credit provided by section 43 as if it were a credit— "(i) of not more than 10 percent of the first $2,500 of earned income, which "(ii) phases out between $3,000 and $5,000 of earned income. "(d) PAYMENTS TO B E TREATED AS PAYMENTS OF WITHHOLDING AND FICA TAXES.— "(1) IN GENERAL.—For purposes of this title, payments made by an employer under subsection (a) to his employees for any payroll period— "(A) shall not be treated as the payment of compensation, and "(B) shall be treated as made out of— "(i) amounts required to be deducted and withheld for 26 use 3401. the payroll period under section 3401 (relating to wage withholding), and "(ii) amounts required to be deducted for the payroll 26 use 3102. period under section 3102 (relating to FICA employee taxes), and "(iii) amounts of the taxes imposed for the payroll 26 use 3111. period under section 3111 (relating to FICA employer taxes), as if the employer had paid to the Secretary, on the day on which the wages are paid to the employees, an amount equal to such payments. "(2) ADVANCE PAYMENTS EXCEED TAXES DUE.—In the case of any employer, if for any payroll period the aggregate amount of earned income advance payments exceeds the sum of the amounts referred to in paragraph (1)(B), each such advance payment shall be reduced by an amount which bears the same ratio to such excess as such advance payment bears to the aggregate amount of all such advance payments. "(3) EMPLOYER MAY MAKE FULL ADVANCE PAYMENTS.—The Sec- retary shall prescribe regulations under which an employer may elect (in lieu of any application of paragraph (2))— "(A) to pay in full all earned income advance amounts, and "(B) to have additional amounts paid by reason of this paragraph treated as the advance payment of taxes imposed by this title. "(4) FAILURE TO MAKE ADVANCE PAYMENTS.—For purposes of this title (including penalties), failure to make any advance payment under this section at the time provided therefor shall be
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2775 treated as the failure at such time to deduct and withhold under chapter 24 an amount equal to the amount of such advance 26 use 3401 et pa5nnent. ^^9 "(e) FURNISHING AND TAKING EFFECT OF CERTIFICATES.—For pur- poses of this section— "(1) WHEN CERTIFICATE TAKES EFFECT.— "(A) FIRST CERTIFICATE FURNISHED.—An earned income eligibility certificate furnished the employer in cases in which no previous such certificate had been in effect for the calendar year shall take effect as of the beginning of the first payroll period ending, or the first payment of wages made without regard to a payroll period, on or after the date on which such certificate is so furnished (or if later, the first day of the calendar year for which furnished). "(B) LATER CERTIFICATE.—An earned income eligibility certificate furnished the employer in cases in which a previous such certificate had been in effect for the calendar year shall take effect with respect to the first pa5nnent of wages made on or after the first status determination date which occurs at least 30 days after the date on which such certificate is so furnished, except that at the election of the employer such certificate may be made effective with respect . to any payment of wages made on or after the date on which such certificate is so furnished. For purposes of this section, the term 'status determination date' means January 1, May 1, July 1, and October 1 of each year. "(2) PERIOD DURING WHICH CERTIFICATE REMAINS IN EFFECT.— An earned income eligibility certificate which takes effect under this section for any calendar year shall continue in effect with respect to the employee during such calendar year until revoked by the employee or until another such certificate takes effect under this section. "(3) CHANGE OF STATUS.— "(A) REQUIREMENT TO REVOKE OR FURNISH NEW CERTIFI- CATE.—If, after an employee has furnished an earned income eligibility certificate under this section, there has been a change of circumstances which has the effect of— "(i) making the employee ineligible for the credit provided by section 43 for the taxable year, or ^me, pp. 2772, "(ii) causing an earned income eligibility certificate to '^'^'^^• be in effect with respect to the spouse of the employee, the employee shall, within 10 days after such change in circumstances, furnish the employer with a revocation of such certificate or with a new certificate (as the case may be). Such a revocation (or such a new certificate) shall take effect under the rules provided by paragraph (1)(B) for a later certificate and shall be made in such form as the Secretary shall by regulations prescribe. "(B) CERTIFICATE NO LONGER IN EFFECT.—If, after an employee has furnished an earned income eligibility certifi- cate under this section which certifies that such a certificate is in effect with respect to the spouse of the employee, such a certificate is no longer in effect with respect to such spouse, then the employee may furnish the employer with a new earned income eligibility certificate.
92 STAT. 2776 PUBLIC LAW 95-600—NOV. 6, 1978 "(4) FORM AND CONTENTS OF CERTIFICATE.—Earned income eligibility certificates shall be in such form and contain such other information as the Secretary may by regulations prescribe. "(5) TAXABLE YEAR DEFINED.—The term 'taxable year' means the last taxable year of the employee under subtitle A beginning in the calendar year in which the wages are paid.". (2) CLERICAL AMENDMENT.—The table of sections for chapter 25 is amended by adding at the end thereof the following new item: "Sec. 3507. Advance payment of earned income credit.". (c) INFORMATION SHOWN ON W-2.—The first sentence of section 26 use 6051. 6051 (a) (relating to receipts for employees) is amended— (1) by striking out "and" at the end of paragraph (5), (2) by striking out the period at the end of paragraph (6) and inserting in lieu thereof ", and", and (3) by adding at the end thereof the following new paragraph: "(7) the total amount paid to the employee under section 3507 (relating to advance payment of earned income credit).". 26 use 6012. (d) REQUIREMENT OF RETURN.—Subsection (a) of section 6012 (relat- ing to persons required to make returns of income) is amended by adding at the end thereof the following new paragraph: "(8) Every individual who receives payments during the calen- Ante, p. 2773. dar year in which the taxable year begins under section 3507 (relating to advance payment of earned income credit).". 26 use 6302. (e) CROSS REFERENCE.—Section 6302 (relating to mode or time of collection) is amended by adding at the end thereof the following new subsection: "(d) CROSS REFERENCE.— "For treatment of payment of earned income advance amounts as pay- ment of withholding and FICA taxes, see section 3507(d).". (f) DISREGARD TO TERMINATE IN 1980.—Section 2(d) of the Revenue 26 use 43 note. Adjustment Act of 1975 (relating to disregard of refund) is amended— (1) by inserting before "shall not be taken into account" the following: ", and any payment made by an employer under 26 use 3507. section 3507 of such Code (relating to advance payment of earned income credit)", and (2) by inserting after "shall not be taken into account" the following: "in any year ending before 1980". (g) EFFECTIVE DATE.— 26 use 43 note. (1) The amendments made by subsections (a) and (d) shall apply to taxable years beginning after December 31,1978. 26 use 3507 (2) The amendments made by subsections (b), (c), and (e) shall "o*^- apply to remuneration paid after June 30,1978. 26 use 43 note. (3) Subsection (f) shall take effect on the date of the enactment of this Act. SEC. 106. APPLICATION OF CERTAIN CHANGES IN THE CASE OF FISCAL YEAR TAXPAYERS. 26 use 21. Section 21 (relating to effects of changes in rate of tax) is amended by adding at the end thereof the following new subsection: "(D CHANGES MADE BY REVENUE ACT OF 1978.—In applying subsec- tion (a) to a taxable year which is not a calendar year— Ante, pp. 2767, "(1) the amendments made by sections 101,102, and 301 of the 2771; Post, p. Revenue Act of 1978 (and no other amendments made by such 2820. Act), and 26 use 42. "(2) the expiration of section 42 (relating to general tax credit), shall be treated as a change in a rate of tax.".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2777 Subtitle B—Itemized Deductions; Etc. SEC. 111. REPEAL OF DEDUCTION FOR STATE AND LOCAL TAXES ON GASOLINE AND OTHER MOTOR FUELS. (a) REPEAL.—Paragraph (5) of section 164(a) (relating to deduction 26 u s e 164. for taxes) is hereby repealed. (b) CONFORMING AMENDMENTS.— (1) The heading of paragraph (5) of section 164(b) is amended by striking out "AND GASOLINE TAXES". (2) The text of such paragraph (5) is amended by striking out "or of any tax on the sale of gasoline, diesel fuel, or other motor fuel". (c) EFFECTIVE DATE.—The amendments made by this section shall 26 use 164 apply to taxable years beginning after December 31,1978. "o*^- SEC. 112. TAXATION OF UNEMPLOYMENT COMPENSATION BENEFITS AT CERTAIN INCOME LEVELS. (a) INCLUSION IN GROSS INCOME.—Part II of subchapter B of chapter 1 (relating to amounts specifically included in gross income) is 26 use 71. amended by adding at the end thereof the following new section: "SEC. 85. UNEMPLOYMENT COMPENSATION. 26 USe 85. "(a) I N GENERAL.—If the sum for the taxable year of the adjusted gross income of the taxpayer (determined without regard to this section and without regard to section 105(d)) and the unemployment 26 u s e 105. compensation exceeds the base amount, gross income for the taxable year includes unemployment compensation in an amount equal to the lesser of— "(1) one-half of the amount of the excess of such sum over the base amount, or "(2) the amount of the unemployment compensation. "(b) BASE AMOUNT DEFINED,—For purposes of this section, the term 'base amount'means— "(1) except as provided in paragraphs (2) and (3), $20,000, "(2) $25,000, in the case of a joint return under section 6013, or 26 use 6013. "(3) zero, in the case of a taxpayer who— "(A) is married at the close of the taxable year (within the meaning of section 143) but does not file a joint return for 26 USe 143. such year, and "(B) does not live apart from his spouse at all times during the taxable year. "(c) UNEMPLOYMENT COMPENSATION DEFINED.—For purposes of this section, the term 'unemployment compensation' means any amount received under a law of the United States or of a State which is in the nature of unemployment compensation.". (b) REPORTING OF UNEMPLOYMENT COMPENSATION PAYMENTS.— Subpart B of part III of subchapter A of chapter 61 (relating to information concerning transactions with other persons) is amended by adding at the end thereof the following new section: "SEC. 6050B. RETURNS RELATING TO UNEMPLOYMENT COMPENSATION. 26 USC 6050B. "(a) REQUIREMENT OF REPORTING.—Every person who makes pay- ments of unemployment compensation aggregating $10 or more to any individual during any calendar year shall make a return accord- ing to the forms or regulations prescribed by the Secretary, setting forth the aggregate amounts of such payments and the name and address of the individual to whom paid. 39-194 O—80—pt. 3 10 : QL3
92 STAT. 2778 PUBLIC LAW 95-600—NOV. 6, 1978 "(b) STATEMENTS T O B E FURNISHED TO INDIVIDUALS WITH RESPECT TO WHOM INFORMATION IS FURNISHED.—Every person making a return under subsection (a) shall furnish to each individual whose name is set forth in such return a written statement showing— "(1) the name and address of the person making such return, and "(2) the aggregate amount of payments to the individual as shown on such return. The written statement required under the preceding sentence shall be furnished to the individual on or before January 31 of the year following the calendar year for which the return under subsection (a) was made. No statement shall be required to be furnished to any individual under this subsection if the aggregate amount of payments to such individual shown on the return made under subsection (a) is less than $10. "(c) DEFINITIONS.—For purposes of this section— "(1) UNEMPLOYMENT COMPENSATION.—The term 'unemploy- ment compensation' has the meaning given to such term by 26 use 85. section 85(c). "(2) PERSON.—The term 'person' means the officer or employee having control of the payment of the unemployment compensa- tion, or the person appropriately designated for purposes of this section." (c) CLERICAL AMENDMENTS.— (1) The table of sections for part II of subchapter B of chapter 1 is amended by adding at the end thereof the following new item: "Sec. 85. Unemployment compensation." (2) The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by adding at the end thereof the following new item: "Sec. 6050B. Returns relating to unemployment compensation.". 26 use 85 note. (d) EFFECTIVE DATE.—The amendments made by this section shall apply to payments of unemployment compensation made after December 31,1978, in taxable years ending after such date. SEC. 113. REPEAL OF DEDUCTION FOR POLITICAL CONTRIBUTIONS; INCREASE IN CREDIT. (a) REPEAL OF DEDUCTION.— 26 use 218. (1) REPEAL.—Section 218 (relating to deduction for contribu- tions to candidates for public office and newsletter funds) is hereby repealed. (2) CONFORMING AMENDMENTS.— (A) The table of sections for part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by striking out the item relating to section 218. 26 use 642. (B) Section 642 (relating to special rules for credits and deductions of estates and trusts) is amended by striking out subsection (i) and by redesignating subsections (j) and (k) as subsections (i) and (j), respectively. 26 use 41. (c) INCREASE IN AMOUNT OF CREDIT.—Paragraph (1) of section 41(b) (relating to maximum credit) is amended by striking out "$25" and "$50" and inserting in lieu thereof "$50" and "$100", respectively. 26 use 41 note. (d) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to contributions the payment of which is made after December 31,1978, in taxable years beginning after such date.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2779 Subtitle C—Credits SEC. 121. PAYMENTS TO RELATED INDIVIDUALS UNDER CHILD CARE CREDIT. (a) I N GENERAL.—Paragraph (6) of section 44A(f) (relating to pay- 26 use 44A. ments to related individuals) is amended to read as follows: "(6) PAYMENTS TO RELATED INDIVIDUALS.—No credit shall be allowed under subsection (a) for any amount paid by the tax- payer to an individual— "(A) with respect to whom, for the taxable year, a deduc- tion under section 151(e) (relating to deduction for personal 26 use 151. exemptions for dependents) is allowable either to the tax- payer or his spouse, or "(B) who is a child of the taxpayer (within the meaning of section 151(e)(3)) who has not attained the age of 19 at the close of the taxable year. For purposes of this paragraph, the term 'taxable year' means "Taxable year. the taxable year of the taxpayer in which the service is performed." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 u s e 44A apply to taxable years beginning after December 31,1978. note. Subtitle D—Deferred Compensation PART I—DEFERRED COMPENSATION PROVISIONS SEC. 131. DEFERRED COMPENSATION PLANS WITH RESPECT TO SERVICE 26 u s e 457. FOR STATE AND LOCAL GOVERNMENTS. (a) IN GENERAL.—Subpart B of part II of subchapter E of chapter 1 (relating to taxable years for which gross income included) is amended by adding at the end thereof the following new section: "SEC. 457. DEFERRED COMPENSATION PLANS WITH RESPECT TO SERV- ICE FOR STATE AND LOCAL GOVERNMENTS. "(a) YEAR OF INCLUSION IN GROSS INCOME.—In the case of a participant in an eligible State deferred compensation plan, any amount of compensation deferred under the plan, and any income attributable to the amounts so deferred, shall be includible in gross income only for the taxable year in which such compensation or other income is paid or otherwise made available to the participant or other beneficiary. "(b) ELIGIBLE STATE DEFERRED COMPENSATION PLAN DEFINED.—For purposes of this section, the term 'eligible State deferred compensa- tion plan' means a plan established and maintained by a State— "(1) in which only individuals who perform service for the State may be participants, "(2) which provides that (except as provided in paragraph (3)) the maximum that may be deferred under the plan for the taxable year shall not exceed the lesser of— "(A) $7,500, or "(B) 33 Va percent of the participant's includible compensation, "(3) which may provide that, for 1 or more of the participant's last 3 taxable years ending before he attains normal retirement age under the plan, the ceiling set forth in paragraph (2) shall be the lesser of—
92 STAT. 2780 PUBLIC LAW 95-600—NOV. 6, 1978 i, "(A) $15,000, or "(B) the sum of— "(i) the plan ceiHng estabHshed for purposes of para- graph (2) for the taxable year (determined without regard to this paragraph), plus "(ii) so much of the plan ceiling established for pur- poses of paragraph (2) for taxable years before the taxable year as has not theretofore been used under paragraph (2) or this paragraph, "(4) which provides that compensation will be deferred for any calendar month only if an agreement providing for such deferral has been entered into before the beginning of such month, "(5) which does not provide that amounts payable under the plan will be made available to participants or other beneficiaries earlier than when the participant is separated from service with the State or is faced with an unforeseeable emergency (deter- mined in the manner prescribed by the Secretary by regulation), and "(6) which provides that— "(A) all amounts of compensation deferred under the plan, "(B) all property and rights purchased with such amounts, and "(C) all income attributable to such amounts, property, or rights, shall remain (until made available to the participant or other beneficiary) solely the property and rights of the State (without being restricted to the provision of benefits under the plan) subject only to the claims of the State's general creditors. A plan which is administered in a manner which is inconsistent with the requirements of any of the preceding paragraphs shall be treated as not meeting the requirements of such paragraph as of the first plan year beginning more than 180 days after the date of notification by the Secretary of the inconsistency unless the State corrects the inconsistency before the first day of such plan year. "(c) INDIVIDUALS WHO ARE PARTICIPANTS IN MORE THAN O N E PLAN.— "(1) IN GENERAL.—The maximum amount of the compensation of any one individual which may be deferred under subsection (a) during any taxable year shall not exceed $7,500 (as modified by any adjustment provided under subsection (b)(3)). 26 use 403. "(2) COORDINATION WITH SECTION 403(b).—In applying para- graph (1) of this subsection and paragraphs (2) and (3) of subsec- tion (b), an amount excluded during a taxable year under section 403(b) shall be treated as an amount deferred under subsection (a). In applying clause (ii) of section 403(b)(2)(A), an amount deferred under subsection (a) for any year of service shall be taken into account as if described in such clause. "(d) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) STATE.—The term 'State' means a State, a political subdi- vision of a State, and an agency or instrumentality of a State or political subdivision of a State. "(2) PERFORMANCE OF SERVICE.—The performance of service includes performance of service as an independent contractor. "(3) PARTICIPANT.—The term 'participant' means an individual who is eligible to defer compensation under the plan.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2781 "(4) BENEFICIARY.—The term 'beneficiary' means a beneficiary of the participant, his estate, or any other person whose interest in the plan is derived from the participant. "(5) INCLUDIBLE COMPENSATION.—The term 'includible compen- sation' means compensation for service performed for the State which (taking into account the provisions of this section and section 4O30b)) is currently includible in gross income, "(6) COMPENSATION TAKEN INTO ACCOUNT AT PRESENT VALUE.— Compensation shall be taken into account at its present value. "(7) COMMUNITY PROPERTY LAWS.—The amount of includible - compensation shall be determined without regard to any commu- nity property laws. "(8) INCOME ATTRIBUTABLE.—Gains from the disposition of property shall be treated as income attributable to such property. "(9) SECTION TO APPLY TO RURAL ELECTRIC COOPERATIVES.— "(A) IN GENERAL.—This section shall apply with respect to any participant in a plan of a rural electric cooperative in the same manner and to the same extent as if such plan were a plan of a State. "(B) RURAL ELECTRIC COOPERATIVE DEFINED.—For purposes of subparagraph (A), the term 'rural electric cooperative' means— "(i) any organization described in section 501(c)(12) 26 USC 501. which is exempt from tax under section 501(a) and which is engaged primarily in providing electric service, and "(ii) any organization described in section 501(c)(6) which is exempt from tax under section 501(a) and all the members of which are organizations described in clause (i). "(e) TAX TREATMENT OF PARTICIPANTS WHERE PLAN OR ARRANGE- MENT OF STATE IS NOT EUGIBLE.— "(1) IN GENERAL.—In the case of a plan of a State providing for a deferral of compensation, if such plan is not an eligible State deferred compensation plan, then— "(A) the compensation shall be included in the gross income of the participant or beneficiary for the first taxable year in which there is no substantial risk of forfeiture of the rights to such compensation, and "(B) the tax treatment of any amount made available under the plan to a participant or beneficiary shall be determined under section 72 (relating to annuities, etc.). 26 USC 72. "(2) EXCEPTIONS.—Paragraph (1) shall not apply to— "(A) a plan described in section 401(a) which includes a 26 USC 40i. trust exempt from tax under section 501(a), 26 USC 501. "(B) an annuity plan or contract described in section 403, 26 USC 403. "(C) a qualified bond purchase plan described in section 405(a), 26 USC 405. "(D) that portion of any plan which consists of a transfer of property described in section 83, and 26 USC 83. "(E) that portion of any plan which consists of a trust to which section 402(b) applies. 26 USC 402. "(3) DEFINITIONS.—For purposes of this subsection— "(A) PLAN INCLUDES ARRANGEMENTS, ETC.—The term 'plan' includes any agreement or arrangement.
92 STAT. 2782 PUBLIC LAW 95-600—NOV. 6, 1978 "(B) SUBSTANTIAL RISK OF FORFEITURE.—The rights of a person to compensation are subject to a substantial risk of forfeiture if such person's rights to such compensation are conditioned upon the future performance of substantial services by any individual." (b) CLERICAL AMENDMENT.—The table of sections for such subpart B is amended by adding at the end thereof the following: "Sec. 457. Deferred compensation plans with respect to service for State and local governments.". 26 use 457 (c) EFFECTIVE DATE.— "°*^- (1) IN GENERAL.—The amendments made by this section shall apply to taxable years beginning after December 31, 1978. (2) TRANSITIONAL RULES.— (A) IN GENERAL.—In the case of any taxable year begin- ning after December 31, 1978, and before January 1, 1982— (i) any amount of compensation deferred under a plan of a State providing for a deferral of compensation (other than a plan described in section 457(e)(2) of the Ante, p. 2779. Internal Revenue Code of 1954), and any income attrib- utable to the amounts so deferred, shall be includible in gross income only for the taxable year in which such compensation or other income is paid or otherwise made available to the participant or other beneficiary, but (ii) the maximum amount of the compensation of any one individual which may be excluded from gross income by reason of clause (i) and by reason of section 457(a) of such Code during any such taxable year shall not exceed the lesser of— (I) $7,500, or (II) 33 Vs percent of the participant's includible compensation. (B) APPLICATION OF CATCH-UP PROVISIONS IN CERTAIN CASES.—If, in the case of any participant for any taxable year, all of the plans are eligible State deferred compensa- tion plans, then clause (ii) of subparagraph (A) of this paragraph shall be applied with the modification provided by paragraph (3) of section 457(b) of such Code. (C) APPLICATIONS OF CERTAIN COORDINATION PROVISIONS.— In applying clause (ii) of subparagraph (A) of this paragraph 26 use 403. and section 403(b)(2)(A)(ii) of such Code, rules similar to the Ante, p. 2779. rules of section 457(c)(2) of such Code shall apply. (D) MEANING OF TERMS.—Except as otherwise provided in this paragraph, terms used in this paragraph shall have the same meaning as when used in section 457 of such Code. SEC. 132. CERTAIN PRIVATE DEFERRED COMPENSATION PLANS. 26 use 451 (a) GENERAL RULE.—The taxable year of inclusion in gross income ^^^^- of any amount covered by a private deferred compensation plan shall be determined in accordance with the principles set forth in regula- tions, rulings, and judicial decisions relating to deferred compensa- tion which were in effect on February 1,1978. (b) PRIVATE DEFERRED COMPENSATION PLAN DEFINED.— (1) IN GENERAL.—For purposes of this section, the term "pri- vate deferred compensation plan" means a plan, agreement, or arrangement— , (A) where the person for whom the service is performed is not a State (within the meaning of paragraph (1) of section
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2783 457(d) of the Internal Revenue Code of 1954) and not an ^^te, p. 2779. organization which is exempt from tax under section 501 of ^6 USC 501. such Code, and (B) under which the payment or otherwise making availa- ble of compensation is deferred. (2) CERTAIN PLANS EXCLUDED.—Paragraph (1) shall not apply to— (A) a plan described in section 401(a) of the Internal Revenue Code of 1954 which includes a trust exempt from 26 USC 401. tax under section 501(a) of such Code, 26 USC 501. (B) an annuity plan or contract described in section 403 of 26 USC 403. such Code, (C) a qualified bond purchase plan described in section 405(a) of such Code, 26 USC 405. (D) that portion of any plan which consists of a transfer of property described in section 83 (determined without regard 26 USC 83. to subsection (e) thereof) of such Code, and 26 USC 402. (E) that portion of any plan which consists of a trust to which section 4O20b) of such Code applies. (c) EFFECTIVE DATE.—This section shall apply to taxable years ending on or after February 1,1978. SEC. 133. CLARIFICATION OF DEDUCTIBILITY OF PAYMENTS OF DEFERRED COMPENSATION, ETC., TO INDEPENDENT CONTRACTORS. (a) I N GENERAL.—Section 404 (relating to deduction for contribu- 26 USC 404. tions of an employer to an employees' trust or annuity plan and compensation under a deferred-payment plan) is amended by insert- ing after subsection (c) the following new subsection: "(d) DEDUCTIBILITY OF PAYMENTS OF DEFERRED COMPENSATION, ETC., TO INDEPENDENT CONTRACTORS.—If a plan would be described in so much of subsection (a) as precedes paragraph (1) thereof (as modified by subsection (b)) but for the fact that there is no employer-employee relationship, the contributions or compensation— "(1) shall not be deductible by the payor thereof under section 162 or 212, but 26 USC 162, "(2) shall (if they would be deductible under section 162 or 212 212. but for paragraph (1)) be deductible under this subsection for the taxable year in which an amount attributable to the contribution or compensation is includible in the gross income of the persons participating in the plan." (b) CLARIFICATION OF SECTION 404(b).—-Subsection Ot)) of section 404 26 USC 404. (relating to method of contributions, etc., having the effect of a plan) is amended by striking out "similar plan" and inserting in lieu thereof "other plan". (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 404 apply to deductions for taxable years beginning after December 31, "ote. 1978. SEC. 134. TAX TREATMENT OF CAFETERIA PLANS. (a) IN GENERAL.—Part III of subchapter B of chapter 1 (relating to items specifically excluded from gross income) is amended by redesig- nating section 125 as section 126 and by inserting after section 124 the 26 USC 126. following new section: "SEC. 125. CAFETERIA PLANS. 26 USC 125. "(a) I N GENERAL.—Except as provided in subsection Ot)), no amount shall be included in the gross income of a participant in a cafeteria
92 STAT. 2784 PUBLIC LAW 95-600—NOV. 6, 1978 plan solely because, under the plan, the participant may choose among the benefits of the plan. "(b) EXCEPTION FOR HIGHLY COMPENSATED PARTICIPANTS WHERE PLAN IS DISCRIMINATORY.— "(1) IN GENERAL.—In the case of a highly compensated partici- pant, subsection (a) shall not apply to any benefit attributable to a plan year for which the plan discriminates in favor of— "(A) highly compensated individuals as to eligibility to participate, or : "(B) highly compensated participants as to contributions *i • and benefits. "(2) YEAR OF INCLUSION.—For purposes of determining the taxable year of inclusion, any benefit described in paragraph (1) shall be treated as received or accrued in the participant's taxable year in which the plan year ends. "(c) DISCRIMINATION AS TO BENEFITS OR CONTRIBUTIONS.—For pur- poses of subparagraph (B) of subsection (b)(1), a cafeteria plan does not discriminate where nontaxable benefits and total benefits (or employer contributions allocable to nontaxable benefits and employer contributions for total benefits) do not discriminate in favor of highly compensated participants. "(d) CAFETERIA PLAN DEFINED.—For purposes of this section— "(1) IN GENERAL.—The term 'cafeteria plan' means a written plan under which— "(A) all participants are employees, and "(B) the participants may choose among two or more benefits. The benefits which may be chosen may be nontaxable benefits, or cash, property, or other taxable benefits. "(2) DEFERRED COMPENSATION PLANS EXCLUDED.—The term 'cafeteria plan' does not include any plan which provides for deferred compensation. "(e) HIGHLY COMPENSATED PARTICIPANT AND INDIVIDUAL DEFINED.—For purposes of this section— "(1) HIGHLY COMPENSATED PARTICIPANT.—The term 'highly compensated participant' means a participant who is— "(A) an officer, "(B) a shareholder owning more than 5 percent of the voting power or value of all classes of stock of the employer, "(C) highly compensated, or "(D) a spouse or dependent (within the meaning of section 26 use 152. 152) of an individual described in subparagraph (A), (B), or (C). "(2) HIGHLY COMPENSATED INDIVIDUAL.—The term 'highly compensated individual' means an individual who is described in subparagraphs (A), (B), (C), or (D) of paragraph (1). "(f) NONTAXABLE BENEFIT DEFINED.—For purposes of this section, the term 'nontaxable benefit' means any benefit which, with the application of subsection (a), is not includible in the gross income of the employee. "(g) SPECIAL RULES.— ii "(1) COLLECTIVELY BARGAINED PLAN NOT CONSIDERED DISCRIMINATORY.—For purposes of this section, a plan shall not be treated as discriminatory if the plan is maintained under an agreement which the Secretary finds to be a collective bargain- ing agreement between employee representatives and one or more employers.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2785 *'(2) HEALTH BENEFITS.—For purposes of subparagraph (B) of subsection (b)(1), a cafeteria plan which provides health benefits shall not be treated as discriminatory if— "(A) contributions under the plan on behalf of each partici- pant include an amount which— "(i) equals 100 percent of the cost of the health benefit coverage under the plan of the majority of the highly compensated participants similarly situated, or "(ii) equals or exceeds 75 percent of the cost of the health benefit coverage of the participant (similarly situated) having the highest cost health benefit coverage under the plan, and "(B) contributions or benefits under the plan in excess of those described in subparagraph (A) bear a uniform relation- ship to compensation. "(3) CERTAIN PARTICIPATION EUGIBILITY RULES NOT TREATED AS DISCRIMINATORY.—For purposes of subparagraph (A) of subsec- tion (b)(1), a classification shall not be treated as discriminatory if the plan— "(A) benefits a group of employees described in subpara- graph (B) of section 410(b)(1), and 26 USC 410. "(B) meets the requirements of clauses (i) and (ii): "(i) No employee is required to complete more than 3 years of employment with the employer or employers maintaining the plan as a condition of participation in the plan, and the service requirement for each employee is the same. "(ii) Any employee who has satisfied the employment requirement of clause (i) and who is otherwise entitled to participate in the plan commences participation no later than the first day of the first plan year beginning after the date the service requirement was satisfied unless the employee was separated from service before the first day of that plan year. "(4) CERTAIN CONTROLLED GROUPS.—All employees who are treated as employed by a single employer under subsection (b) or (c) of section 414 shall be treated as employed by a single 26 USC 414. employer for purposes of this section. "(h) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section." (b) CLERICAL AMENDMENT.—The table of sections for part III of subchapter B of chapter 1 is amended by striking out the item relating to section 124 and inserting in lieu thereof the following: "Sec. 125. Cafeteria plans. "Sec. 126. Cross references to other Acts." (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 125 apply to taxable years beginning after December 31,1978, "^te. SEC. 135. CERTAIN CASH OR DEFERRED ARRANGEMENTS. (a) IN GENERAL.—Section 401 (relating to qualified pension, profit- 26 USC 401. sharing, and stock bonus plans) is amended by redesignating subsec- tion (k) as (1) and by inserting after subsection (j) the following new subsection: "(k) CASH OR DEFERRED ARRANGEMENTS,— "(1) GENERAL RULE.—A profit-sharing or stock bonus plan shall not be considered as not satisfying the requirements of subsec-
92 STAT. 2786 PUBLIC LAW 95-600—NOV. 6, 1978 tion (a) merely because the plan includes a qualified cash or deferred arrangement. "(2) QUALIFIED CASH OR DEFERRED ARRANGEMENT.—A qualified cash or deferred arrangement is any arrangement which is part of a profit-sharing or stock bonus plan which meets the require- ments of subsection (a)— "(A) under which a covered employee may elect to have the employer make payments as contributions to a trust under the plan on behalf of the employee, or to the employee directly in cash; "(B) under which amounts held by the trust which are attributable to employer contributions made pursuant to the employee's election may not be distributable to participants or other beneficiaries earlier than upon retirement, death, disability, or separation from service, hardship or the attain- ment of age 59 ¥2, and will not be distributable merely by reason of the completion of a stated period of participation or the lapse of a fixed number of years; and "(C) which provides that an employee's right to his accrued benefit derived from employer contributions made to the trust pursuant to his election are nonforfeitable. "(3) APPLICATION OF PARTICIPATION AND DISCRIMINATION STANDARDS.— "(A) A qualified cash or deferred arrangement shall be considered to satisfy the requirements of subsection (a)(4), with respect to the amount of contributions, and of subpara- 26 use 410. graph (B) of section 410(b)(1) for a plan year if those employ- ees eligible to benefit under the plan satisfy the provisions of subparagraph (A) or (B) of section 410(b)(1) and if the actual deferral percentage for highly compensated employees (as defined in paragraph (4)) for such plan year bears a relation- ship to the actual deferral percentage for all other eligible employees for such plan year which meets either of the following tests: "(i) The actual deferral percentage for the group of highly compensated employees is not more than the actual deferral percentage of all other eligible employ- ees multiplied by 1.5. "(ii) The excess of the actual deferral percentage for the group of highly compensated employees over that of all other eligible employees is not more than 3 percent- age points, and the actual deferral percentage for the group of highly compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 2.5. "(B) For purposes of subparagraph (A), the actual deferral percentage for a specified group of employees for a plan year shall be the average of the ratios (calculated separately for each employee in such group) of— "(i) the amount of employer contributions actually paid over to the trust on behalf of each such employee for such plan year, to "(ii) the employee's compensation for such plan year. For purposes of the preceding sentence, the compensation of any employee for a plan year shall be the amount of his compensation which is taken into account under the plan in calculating the contribution which may be made on his behalf for such plan year.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2787 "(4) HIGHLY COMPENSATED EMPLOYEE.—For purposes of this subsection, the term 'highly compensated employee' means any employee who is more highly compensated than two-thirds of all eligible employees, taking into account only compensation which is considered in applying paragraph (3)." (b) TAXABILITY OF BENEFICIARIES.—Subsection (a) of section 402 is 26 use 402 amended by adding at the end thereof the following new paragraph: "(8) CASH OR DEFERRED ARRANGEMENTS.—For purposes of this title, contributions made by an employer on behalf of an employee to a trust which is a part of a qualified cash or deferred arrangement (as defined in section 401(k)(2)) shall not be treated 26 u s e 401. as distributed or made available to the employee nor as contribu- tions made to the trust by the employee merely because the arrangement includes provisions under which the employee has an election whether the contribution will be made to the trust or received by the employee in cash." (c) EFFECTIVE DATE.— 26 use 401 (1) I N GENERAL.—The amendments made by this section shall note. apply to plan years beginning after December 31,1979. (2) TRANSITIONAL RULE.—In the case of cash or deferred arrangements in existence on June 27,1974— (A) the qualification of the plan and the trust under section 401 of the Internal Revenue Code of 1954; 26 use 401. (B) the exemption of the trust under section 501(a) of such 26 use 501. Code; (C) the taxable year of inclusion in gross income of the employee of any amount so contributed by the employer to the trust; and (D) the excludability of the interest of the employee in the trust under sections 2039 and 2517 of such Code, 26 use 2039, shall be determined for plan years beginning before January 1, 2517. 1980 in a manner consistent with Revenue Ruling 56-497 (1956-2 C.B. 284), Revenue Ruling 63-180 (1963-2 C.B, 189), and Revenue Ruling 68-89 (1968-1 C.B. 402). PART II—EMPLOYEE STOCK OWNERSHIP PLANS SEC. 141. ESOPS. (a) IN GENERAL.—Subpart A of part I of subchapter D of chapter 1 (relating to general rule for pension, profit-sharing, stock bonus plans, etc.) is amended by adding at the end thereof the following new section: "SEC. 409A. QUALIFICATIONS FOR ESOPS. 26 u s e 409A. "(a) ESQ? DEFINED.—Except as otherwise provided in this title, for purposes of this title, the term 'ESOP' means a defined contribution plan which— "(1) meets the requirements of section 401(a), 26 u s e 401. "(2) is designed to invest primarily in employer securities, and "(3) meets the requirements of subsections (b), (c), (d), (e), (f), (g), and (h) of this section. "Ot)) REQUIRED ALLOCATION OF EMPLOYER SECURITIES.— "(1) I N GENERAL.—A plan meets the requirements of this subsection if— "(A) the plan provides for the allocation for the plan year of all employer securities transferred to it or purchased by it (because of the requirements of section 48(n)(l)(A)) to the
92 STAT. 2788 PUBLIC LAW 95-600—NOV. 6, 1978 accounts of all participants who are entitled to share in such allocation, and "(B) for the plan year the allocation to each participant so entitled is an amount which bears substantially the same proportion to the amount of all such securities allocated to all such participants in the plan for that year as the amount of compensation paid to such participant during that year bears to the compensation paid to all such participants during that year. "(2) COMPENSATION IN EXCESS OF $100,000 DISREGARDED.—For purposes of paragraph (1), compensation of any participant in excess of the first $100,000 per year shall be disregarded. "(3) DETERMINATION OF COMPENSATION.—For purposes of this subsection, the amount of compensation paid to a participant for any period is the amount of such participant's compensation 26 use 415. (within the meaning of section 415(c)(3)) for such period. "(4) SUSPENSION OF ALLOCATION IN CERTAIN CASES.—Notwith- standing paragraph (1), the allocation to the account of any participant which is attributable to the basic ESOP credit may be extended over whatever period may be necessary to comply with the requirements of section 415. "(c) PARTICIPANTS MUST HAVE NONFORFEITABLE RIGHTS.—A plan meets the requirements of this subsection only if it provides that each participant has a nonforfeitable right to any employer security allocated to his account. "(d) EMPLOYER SECURITIES MUST STAY IN THE PLAN.—A plan meets the requirements of this subsection only if it provides that no employer security allocated to a participants's account under subsec- tion (b) may be distributed from that account before the end of the 84th month beginning after the month in which the security is allocated to the account. To the extent provided in the plan, the preceding sentence shall not apply in the case of separation from service, death, or disability. "(e) VOTING RIGHTS.— "(1) I N GENERAL.—A plan meets the requirements of this subsection if it meets the requirements of paragraph (2) or (3), whichever is applicable. "(2) REQUIREMENTS WHERE EMPLOYER HAS A REGISTRATION-TYPE CLASS OF SECURITIES.—If the employer has a registration-type class of securities, the plan meets the requirements of this paragraph only if each participant in the plan is entitled to direct the plan as to the manner in which employer securities which are entitled to vote and are allocated to the account of such participant are to be voted. "(3) REQUIREMENT FOR OTHER EMPLOYERS.—If the employer does not have a registration-type class of securities, the plan meets the requirements of this paragraph only if each partici- pant in the plan is entitled to direct the plan as to the manner in which voting rights under employer securities which are allo- cated to the account of such participant are to be exercised with respect to a corporate matter which (by law or charter) must be decided by more than a majority vote of outstanding common shares voted. "(4) REGISTRATION-TYPE CLASS OF SECURITIES DEFINED.—For pur- poses of this subsection, the term, 'registration-type class of securities' means—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2789 "(A) a class of securities required to be registered under section 12 of the Securities Exchange Act of 1934, and 15 USC 78/. "(B) a class of securities which would be required to be so registered except for the exemption from registration pro- vided in subsection (g)(2)(H) of such section 12. "(f) PLAN MUST B E ESTABLISHED BEFORE EMPLOYER'S DUE DATE.— "(1) IN GENERAL.—A plan meets the requirements of this subsection for a plan year only if it is established on or before the due date for the filing of the employer's tax return for the taxable year (including any extensions of such date) in which or with which the plan year ends. "(2) SPECIAL RULE FOR FIRST YEAR.—A plan which otherwise meets the requirements of this section shall not be considered to have failed to meet the requirements of section 401(a) merely 26 USC 401. because it was not established by the close of the first taxable year of the employer for which an ESOP credit is claimed by the employer. "(g) TRANSFERRED AMOUNTS MUST STAY IN PLAN EVEN THOUGH INVESTMENT CREDIT IS REDETERMINED OR RECAPTURED.—A plan meets the requirement of this subsection only if it provides that amounts which are transferred to the plan (because of the requirements of section 48(n)(l)) shall remain in the plan (and, if allocated under the 26 USC 48. plan, shall remain so allocated) even though part or all of the ESOP credit is recaptured or redetermined. "(h) RIGHT TO DEMAND EMPLOYER SECURITIES; PUT OPTION.— "(1) IN GENERAL.—A plan meets the requirements of this subsection if a participant who is entitled to a distribution from the plan— "(A) has a right to demand that his benefits be distributed in the form of employer securities, and "(B) if the employer securities are not readily tradable on an established market, has a right to require that the employer repurchase employer securities under a fair valua- tion formula. "(2) PLAN MAY DISTRIBUTE CASH IN CERTAIN CASES.—A plan which otherwise meets the requirements of this section shall not be considered to have failed to meet the requirements of section 401(a) merely because under the plan the benefits may be distributed in cash or in the form of employer securities, "(i) REIMBURSEMENT FOR EXPENSES OF ESTABLISHING AND ADMINIS- TERING PLAN.—A plan which otherwise meets the requirements of this section shall not be treated as failing to meet such requirements merely because it provides that— "(1) EXPENSES OF ESTABLISHING PLAN.—As reimbursement for the expenses of establishing the plan, the employer may with- hold from amounts due the plan for the taxable year for which the plan is established (or the plan may pay) so much of the amounts paid or incurred in connection with the establishment of the plan as does not exceed the sum of— "(A) 10 percent of the first $100,000 which the employer is required to transfer to the plan for that taxable year under section 48(n)(l), and "(B) 5 percent of any amount so required to be transferred in excess of the first $100,000; and "(2) ADMINISTRATIVE EXPENSES.—As reimbursement for the expenses of administering the plan, the employer may withhold from amounts due the plan (or the plan may pay) so much of the
92 STAT. 2790 PUBLIC LAW 95-600—NOV. 6, 1978 amounts paid or incurred during the taxable year as expenses of administering the plan as does not exceed the lesser of— "(A) the sum of— "(i) 10 percent of the first $100,000 of the dividends paid to the plan with respect to stock of the employer during the plan year ending with or within the employ- er's taxable year, and "(ii) 5 percent of the amount of such dividends in excess of $100,000 or "(B) $100,000. "(j) CONDITIONAL CONTRIBUTIONS TO THE PLAN.—A plan which otherwise meets the requirements of this section shall not be treated as failing to satisfy such requirements (or as failing to satisfy the 26 use 401. requirements of section 401(a) of this title or of section 403(c)(1) of the 29 use 1103. Employee Retirement Income Security Act of 1974) merely because of the return of a contribution (or a provision permitting such a return) if— "(1) the contribution to the plan is conditioned on a determina- tion by the Secretary that such plan meets the requirements of this section, "(2) the application for a determination described in paragraph (1) is filed with the Secretary not later than 90 days after the date on which an ESOP credit is claimed, and "(3) the contribution is returned within 1 year after the date on which the Secretary issues notice to the employer that such plan does not satisfy the requirements of this section, "(k) REQUIREMENTS RELATING TO CERTAIN WITHDRAWALS.—Not- withstanding any other law or rule of law— "(1) the withdrawal from a plan which otherwise meets the requirements of this section by the employer of an amount contributed for purposes of the matching ESOP credit shall not be considered to make the benefits forfeitable, and "(2) the plan shall not, by reason of such withdrawal, fail to be for the exclusive benefit of participants or their beneficiaries, if the withdrawn amounts were not matched by employee contribu- 26 use 415. tions or were in excess of the limitations of section 415. Any withdrawal described in the preceding sentence shall not be consid- ered to violate the provisions of section 403(c)(1) of the Employee Retirement Income Security Act of 1974. "(1) EMPLOYER SECURITIES DEFINED.—For purposes of this section— "(1) IN GENERAL.—The term 'employer securities' means common stock issued by the employer (or by a corporation which is a member of the same controlled group) which is readily tradable on an established securities market. "(2) SPECIAL RULE WHERE THERE IS NO READILY TRADABLE COMMON STOCK.—If there is no common stock which meets the requirements of paragraph (1), the term 'employer securities* means common stock issued by the employer (or by a corporation which is a member of the same controlled group) having a combination of voting power and dividend rights equal to or in excess of— "(A) that class of common stock of the employer (or of any other such corporation) having the greatest voting power, and "(B) that class of stock of the employer (or of any other such corporation) having the greatest dividend rights.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2791 "(3) PREFERRED STOCK MAY BE ISSUED IN CERTAIN CASES.— Noncallable preferred stock shall be treated as meeting the requirements of paragraph (1) if such stock is convertible at any time into stock which meets the requirements of paragraph (1) and if such conversion is at a conversion price which (as of the date of the acquisition by the ESOP) is reasonable. "(4) CONTROLLED GROUP OF CORPORATIONS DEFINED.— "(A) IN GENERAL.—For purposes of this subsection, the term 'controlled group of corporations' has the meaning given to such term by section 1563(a) (determined without 26 USC 1563. regard to subsections (a)(4) and (e)(3)(C) of section 1563). "(B) COMMON PARENT MAY OWN ONLY 50 PERCENT OF FIRST TIER SUBSIDIARY.—For purposes of subparagraph (A), if the common parent owns directly stock possessing at least 50 percent of the voting power of all classes of stock and at least 50 percent of each class of nonvoting stock in a first tier subsidiary, such subsidiary (and all other corporations below it in the chain which would meet the 80 percent test of section 1563(a) if the first tier subsidiary were the common parent) shall be treated as includible corporations, "(m) CONTRIBUTIONS OF STOCK OF CONTROLLING CORPORATION.—If the stock of a corporation which controls another corporation or which controls a corporation controlled by such other corporation is contributed to an ESOP of the controlled corporation, then no gain or loss shall be recognized, because of that contribution, to the con- trolled corporation. For purposes of this subsection, the term 'control' has the same meaning as that term has in section 368(c). 26 use 368. "(n) CROSS REFERENCES.— "(1) For requirements for allowance of ESOP credit, see section 48(n). "(2) For assessable penalties for failure to meet requirements of this section, or for failure to make contributions required with respect to the allowance of an ESOP credit, see section 6699." (b) AMENDMENT OF INVESTMENT CREDIT RULES.—Section 48 (relat- 26 use 48. ing to definitions and special rules) is amended by redesignating subsection (n) as subsection (p) and by inserting after subsection (m) the following new subsections: "(n) REQUIREMENTS FOR ALLOWANCE OF ESOP PERCENTAGE.— "(1) I N GENERAL.— "(A) BASIC ESOP PERCENTAGE.—The basic ESOP percentage shall not apply to any taxpayer for any taxable year unless the taxpayer on his return for such taxable year agrees, as a condition for the allowance of such percentage— "(i) to make transfers of employer securities to an ESOP maintained by the taxpayer having an aggregate value equal to 1 percent of the amount of the qualified investment (as determined under subsections (c) and (d) of section 46) for the taxable year, and 26 USC 46. "(ii) to make such transfers at the times prescribed in subparagraph (C). "(B) MATCHING ESOP PERCENTAGE.—The matching ESOP percentage shall not apply to any taxpayer for any taxable year unless the basic ESOP percentage applies to such taxpayer for such taxable year, and the taxpayer on his return for such taxable year agrees, as a condition for the allowance of the matching ESOP percentage— "(i) to make transfers of employer securities to an ESOP maintained by the taxpayer having an aggregate value equal to the sum of the qualified matching
92 STAT. 2792 PUBLIC LAW 95-600—NOV. 6, 1978 employee contributions made to such ESOP for the taxable year, and "(ii) to make such transfers at the times prescribed in subparagraph (C). "(C) TIMES FOR MAKING TRANSFERS.—The aggregate of the transfers required under subparagraphs (A) and (B) shall be made— "(i) to the extent allocable to that portion of the ESOP credit allowed for the taxable year or allowed as a carryback to a preceding taxable year, not later than 30 days after the due date (including extensions) for filing the return for the taxable year, or "(ii) to the extent allocable to that portion of the ESOP credit which is allowed as a carryover in a succeeding taxable year, not later than 30 days after the due date (including extensions) for filing the return for such succeeding taxable year. The Secretary may by regulations provide that transfers may be made later than the times prescribed in the preced- ing sentence where the amount of any credit or carryover or carryback for any taxable year exceeds the amount shown on the return for the taxable year. "(D) ORDERING RULES.—For purposes of subparagraph (C), the portion of the ESOP credit allowed for the current year or as a carryover or carryback shall be determined— "(i) first by treating the credit or carryover or carry- back as attributable to the regular percentage, "(ii) second by treating the portion (not allocated under clause (i)) of such credit or carryover or carryback as attributable to the basic ESOP percentage, and "(iii) finally by treating the portion (not allocated under clause (i) or (ii) as attributable to the matching ESOP percentage. "(2) QUALIFIED MATCHING EMPLOYEE CONTRIBUTION DEFINED.— "(A) I N GENERAL.—For purposes of this subsection, the term 'qualified matching employee contribution' means, with respect to any taxable year, any contribution made by an employee to an ESOP maintained by the taxpayer if— "(i) each employee who is entitled to an allocation of employer securities transferred to the ESOP under paragraph (1)(A) is entitled to make such a contribution, "(ii) the contribution is designated by the employee as a contribution intended to be taken into account under this subparagraph for the taxable year, "(iii) the contribution is paid in cash to the employer or plan administrator not later than 24 months after the close of the taxable year, and is invested forthwith in employer securities, and "(iv) the ESOP meets the requirements of subpara- graph (B). "(B) PLAN REQUIREMENTS.—For purposes of subparagraph (A), an ESOP meets the requirements of this subparagraph if— "(i) participation in the ESOP Is not required as a condition of employment and the ESOP does not require matching employee contributions as a condition of par- ticipation in the ESOP,
PUBLIC LAW 95-600--NOV. 6, 1978 92 STAT. 2793 "(ii) employee contributions under the ESOP meet the requirements of section 401(aK4), and 26 USC 401. "(iii) the ESOP provides for allocation of all employer securities transferred to it or purchased by it (because of the requirements of paragraph (1)(B)) to the account of each participant in an amount equal to such partici- pant's matching employee contributions for the year. "(3) CERTAIN CONTRIBUTIONS OF CASH TREATED AS CONTRIBU- TIONS OF EMPLOYER SECURITIES.—For purposes of this subsection, a transfer of cash shall be treated as a transfer of employer securities if the cash is, under the ESOP, used within 30 days to purchase employer securities. "(4) ADJUSTMENTS IF ESOP CREDIT RECAPTURED.—If any portion of the ESOP credit is recaptured under section 47 or the ESOP 26 USC 47. credit is reduced by a final determination— "(A) the employer may reduce the amount required to be transferred to the ESOP under paragraph (1) for the current taxable year or any succeeding taxable year by an amount equal to such portion (or reduction), or "(B) notwithstanding the provisions of paragraph (5) and to the extent not taken into account under subparagraph (A), the employer may deduct an amount equal to such portion (or reduction), subject to the limitations of section 404. 26 USC 404. "(5) DISALLOWANCE OF DEDUCTION.—No deduction shall be allowed under section 162, 212, or 404 for amounts required to be 26 USC 162, transferred to an ESOP under this subsection. 212, 404. "(6) DEFINITIONS.—For purposes of this subsection— "(A) EMPLOYER SECURITIES.—The term 'employer securi- ties' has the meaning given to such term by section 409A(l). 'XB) VALUE.—The term 'value' means— "(i) in the case of securities listed on a national exchange, the average of closing prices of such securities for the 20 consecutive trading days immediately preced- ing the due date for filing the return for the taxable year (determined with regard to extensions), or "(ii) in the case of securities not listed on a national exchange, the fair market value as determined in good faith and in accordance with regulations prescribed by the Secretary, '(o) CERTAIN CREDITS DEFINED.—For purposes of this title— "(1) REGULAR INVESTMENT CREDIT.—The term 'regular invest- ment credit' means that portion of the credit allowable by section 38 which is attributable to the regular percentage. 26 USC 38. "(2) ENERGY INVESTMENT CREDIT.—The term 'energy invest- ment credit' means that portion of the credit allowable by section 38 which is attributable to the energy percentage. "(3) ESOP CREDIT.—The term 'ESOP credit' means the sum of- ' '(A) the basic ESOP credit, and "(B) the matching ESOP credit. "(4) BASIC ESOP CREDIT.—The term 'basic ESOP credit' means that portion of the credit allowable by section 38 which is attributable to the basic ESOP percentage. "(5) MATCHING ESOP CREDIT.—The term 'matching ESOP credit' means that portion of the credit allowable by section 38 which is attributable to the matching ESOP. 39-194 O—80—pt. 3 11 : QL3
92 STAT. 2794 PUBLIC LAW 95-600—NOV. 6, 1978 "(6) BASIC ESOP PERCENTAGE.—The term 'basic ESOP percent- age' means the 1-percent ESOP percentage set forth in section 26 use 46. 46(a)(2)(E)(i). "(7) MATCHING ESOP PERCENTAGE.—The term 'matching ESOP percentage' means the additional ESOP percentage (not to exceed ¥2 of 1 percent) set forth in section 46(a)(2XEXii)." (c) ASSESSABLE PENALTIES.— (1) I N GENERAL.—Subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end thereof the following new section: 26 u s e 6699. "SEC. 6699. ASSESSABLE PENALTIES RELATING TO ESOP. "(a) I N GENERAL.—If a taxpayer who has claimed an ESOP credit for any taxable year— 26 use 409. "(1) fails to satisfy any requirement provided by section 409A, or "(2) fails to make any contribution which is required under 26 use 48. section 48(n) within the period required for making such contribution, the taxpayer shall pay a penalty in an amount equal to the amount involved in such failure. "(b) No PENALTY WHERE THERE Is TIMELY CORRECTION OF FAIL- URE.—Subsection (a) shall not apply with respect to any failure if the employer corrects such failure (as determined by the Secretary) within 90 days after the Secretary notifies him of such failure. "(c) AMOUNT INVOLVED DEFINED.— "(1) IN GENERAL.—For purposes of this section, the term 'amount involved' means an amount determined by the Secretary. "(2) MAXIMUM AND MINIMUM AMOUNT.—The amount deter- mined under paragraph (1)— "(A) shall not exceed the amount determined by multiply- ing the qualified investment of the employer for the taxable year to which the failure relates by the ESOP percentage claimed by the employer for such year, and "(B) shall not be less than the product of one-half of 1 percent of the amount referred to in subparagraph (A), multiplied by the number of months (or parts thereof) during which such failure continues." (2) CLERICAL AMENDMENT.—The table of sections for such subchapter B is amended by adding at the end thereof the following new item: "Sec. 6699. Assessable penalties relating to ESOP." 26 use 56. (d) REGULAR TAX DEDUCTION FOR PURPOSES OF THE MINIMUM TAX DETERMINED WITHOUT REGARD TO ESOP PERCENTAGE.—Subsection (c) of section 56 (defining regular tax deduction) is amended by adding at the end thereof the following new sentence: "For purposes of the preceding sentence, the amount of the credit allowable under section 38 shall be determined without regard to the ESOP percentage set forth in section 46(a)(2)(E)." 26 use 46. (e) ESOP CREDIT EXTENDED FOR 3 YEARS.—Subparagraph (E) of section 46(a)(2) (relating to amount of business investment credit for current taxable year) is amended by striking out "and ending on December 31, 1980," each place it appears and inserting in lieu thereof "December 31,1983".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2795 (f) TECHNICAL AND CONFORMING AMENDMENTS.— (1) Subsections (d), (e), and (f) of section 301 of the Tax Repeal. Reduction Act of 1975 are hereby repealed. 26 use 46 note. (2) Subparagraph (E) of section 46(aX2) is amended— 26 use 46. (A) by striking out "section 301(e) of the Tax Reduction Act of 1975" and inserting in Heu thereof "section 48(n)(l)(B)", 26 USe 48. and (B) by striking out "section 301(d) of the Tax Reduction Act of 1975" and inserting in Heu thereof "section 409A". (3) Paragraph (21) of section 401(a) is amended to read as 26 use 401. follows: "(21) A trust forming part of an ESOP shall not fail to be considered a permanent program merely because employer con- tributions under the plan are determined solely by reference to the amount of credit which would be allowable under section 46(a) if the employer made the transfer described in section 26 use 26. 48(n)(l)." 26 use 48. (4) The last sentence of section 1504(a) (defining affiliated 26 USe 1504. group) is amended to read as follows: "As used in this subsection, the term 'stock' does not include nonvoting stock which is limited and preferred as to dividends, employer securities (within the meaning for section 409A(1)) while Ante, p. 2787. such securities are held under an ESOP, or qualifying employer securities (within the meaning of section 4975(e)(8)) while such 26 USC 4975. securities are held under a leveraged employee stock ownership plan which meets the requirements of section 4975(e)(7)." (5) Paragraph (7) of section 4975(e) (defining employee stock 26 use 4975. ownership plan) is amended— (A) by striking out "EMPLOYEE" in the paragraph heading and inserting in lieu thereof "LEVERAGED EMPLOYEE", and (B) by striking out "employee" in the text and inserting in lieu thereof "leveraged employee", and (C) by adding at the end thereof the following new sentence: "A plan shall not be treated as as leveraged employee stock ownership plan unless it meets the requirements of subsections (e) and (h) of section 409A." Ante, p. 2787. (6) Paragraph (3) of section 4975(d) is amended by striking out 26 USe 4975. "employee" and inserting in lieu thereof "leveraged employee". (7) Subparagraph (B) of section 415(c)(6) is amended by striking 26 use 415. out clauses (i) and (ii) and inserting in lieu thereof the following: "(i) the term 'employee stock ownership plan' means a leveraged employee stock ownership plan (within the meaning of section 4975(e)(7)) or an ESOP, 26 USC 4975. "(ii) the term 'employer securities' has the meaning given to such term by section 409A,". Ante, p. 2787. (8) The table of sections for part I of subchapter D of chapter 1 is amended by inserting after the item relating to section 409 the following new item: "Sec. 409A. Qualification for ESOPs." (9) Section 404(a)(2) and section 805(d) are each amended by 26 use 404, striking out "and (20)" and inserting in lieu thereof "(20), and ^o^- (22)". (g) EFFECTIVE DATES.— 26 use 409A (1) IN GENERAL.—The amendments made by this section (other note. than by subsection (f)(3)) shall apply with respect to qualified investment for taxable years beginning after December 31,1978.
92 STAT. 2796 PUBLIC LAW 95-600—NOV. 6, 1978 The amendment made by subsection (f)(7) shall apply to years beginning after December 31,1978. 26 use 56 note. (2) RETROACTIVE APPLICATION OF AMENDMENT MADE BY SUBSEC- TION (d).—In determining the regular tax deduction under sec- 26 use 6. tion 6 of the Internal Revenue Code of 1954 for any taxable year beginning before January 1, 1979, the amount of the credit 26 use 38. allowable under section 38 shall be determined without regard to 26 use 46. section 46(a)(2)(B) of such Code (as in effect before the enactment 92 Stat. 3174. of the Energy Tax Act of 1978). 26 u s e 1 note. SEC. 142. CERTAIN LUMP SUM DISTRIBUTIONS EXCLUDED FROM GROSS ESTATE WHERE RECIPIENT ELECTS NOT TO APPLY 10-YEAR AVERAGING. 26 use 2039. (a) IN GENERAL.—Subsection (c) of section 2039 (relating to exemp- tion of annuities under certain trusts and plans) is amended by striking out "(other than a lump sum distribution described in section 26 use 402. 402(e)(4), determined without regard to the next to the last sentence of section 402(e)(4)(A))" and inserting in lieu thereof "(other than an amount described in subsection (f))" 26 use 2039. Qy^ DEFINITIONS.—Section 2039 is amended by adding at the end thereof the following new subsection: "(f) LUMP SUM DISTRIBUTIONS.— "(1) IN GENERAL.—An amount is described in this subsection if 26 use 402. it is a lump sum distribution described in section 402(eX4) (determined without regard to the next to the last sentence of section 402(e)(4)(A)). "(2) EXCEPTION WHERE RECIPIENT ELECTS NOT TO TAKE IO-YEAR AVERAGING.—A lump sum distribution described in paragraph (1) shall be treated as not described in this subsection if the recipient elects irrevocably (at such time and in such manner as the Secretary may by regulations prescribe) to treat the distribu- tion as taxable under section 402(a) without the application of paragraph (2) thereof." 26 use 2039 (c) EFFECTIVE DATE.—The amendments made by this section shall note. apply with respect to the estates of decedents dying after Decem- ber 31, 1978. SEC. 143. QUALIFIED PLANS REQUIRED TO PASS THROUGH VOTING RIGHTS ON EMPLOYER SECURITIES. 26 use 401. (a) IN GENERAL.—Subsection (a) of section 401 (relating to qualified pension, profit-sharing, and stock bonus plans) is amended by insert- ing after paragraph (21) the following new paragraph: "(22) Ifa defined contributions plan— "(A) is established by an employer whose stock is not publicly traded, and "(B) after acquiring securities of the employer, more than 10 percent of the total assets of the plan as securities of the employer, any trust forming part of said plan shall not constitute a qualified trust under this section unless the plan meets the Ante, p. 2787. requirements of subsection (e) of section 409A." 26 use 401 (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall note. apply to acquisitions of securities after December 31,1979.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2797 Subtitle E—Retirement Plans SEC. 152. SIMPLIFIED EMPLOYEE PENSIONS. (a) INCREASE IN MAXIMUM LIMITATION UNDER SECTION 408 TO 26 use 408. $7,500.—Section 408 (relating to individual retirement account) is amended by redesignating subsection (j) as subsection (m) and by inserting after subsection (i) the following new subsection: "(j) INCREASE IN MAXIMUM LIMITATIONS FOR SIMPLIFIED EMPLOYEE PENSIONS.—In the case of a simplified employee pension, this section shall be applied by substituting '$7,500' for '$1,500' in the following provisions: "(1) paragraph (1) of subsection (a), "(2) paragraph (2) of subsection (b), and "(3) paragraph (5) of subsection Ot>)." (b) SIMPLIFIED EMPLOYEE PENSION DEFINED.—Section 408 is amended by inserting after subsection (j) the following new subsection: "(k) SiMPUFiED EMPLOYEE PENSION DEFINED.— "(1) I N GENERAL.—For purposes of this title, the term 'simpli- fied employee pension' means an individual retirement account or individual retirement annuity with respect to which the requirements of paragraphs (2), (3), (4), and (5) of this subsection are met. "(2) PARTICIPATION REQUIREMENTS.—This paragraph is satis- fied with respect to a simplified employee pension for a calendar \ year only if for such year the employer contributes to the 1 simplified employee pension of each employee who— \ "(A) has attained age 25, and \ "(B) has performed service for the employer during at least 3 of the immediately preceding 5 calendar years. \ "(3) CONTRIBUTIONS MAY NOT DISCRIMINATE IN FAVOR OF THE \ HIGHLY COMPENSATED, ETC.— "(A) I N GENERAL.—The requirements of this paragraph are met with respect to a simplified employee pension for a \ calendar year if for such year the contributions made by the I employer to simplified employee pensions for his employees do not discriminate in favor of any employee who is— "(i) an officer, "(ii) a shareholder, "(iii) a self-employed individual, or "(iv) highly compensated. "(B) SPECIAL RULES.—For purposes of subparagraph (A)— "(i) there shall be excluded from consideration employees described in subparagraph (A) or (C) of sec- tion 410(b)(2), and 26 USC 410. "(ii) an individual shall be considered a shareholder if he owns (with the application of section 318) more than 26 use 318. 10 percent of the value of the stock of the employer. "(C) CONTRIBUTIONS MUST BEAR A UNIFORM RELATIONSHIP TO TOTAL COMPENSATION.—For purposes of Subparagraph (A), employer contributions to simplified employee pensions shall be considered discriminatory unless contributions thereto bear a uniform relationship to the total compensa- tion (not in excess of the first $100,000) of each employee maintaining a simplified employee pension.
92 STAT. 2798 PUBLIC LAW 95-600—NOV. 6, 1978 "(D) TREATMENT OF CERTAIN CONTRIBUTIONS AND TAXES.— Except as provided in this subparagraph, employer contribu- tions do not meet the requirements of this paragraph unless such contributions meet the requirements of this paragraph without taking into account contributions or benefits under 26 use 1401. chapter 2 (relating to tax on self-employment income), chap- 26 use 3101. ter 21 (relating to Federal Insurance Contribution Act), title 42 use 401. II of the Social Security Act, or any other Federal or State 26 use 3111. law. Taxes paid under section 3111 (relating to tax on employers) with respect to an employee may, for purposes of this paragraph, be taken into account as a contribution by the employer to an employee's simplified employee pension. If contributions are made to the simplified employee pension of an owner-employee, the preceding sentence shall not apply unless taxes paid by all such owner-employees under chapter 2, and the taxes which would be payable under chapter 2 by such owner-employees but for paragraphs (4) 26 use 1402. and (5) of section 1402(c), are taken into account as contribu- tions by the employer on behalf of such owner-employees. "(4) WITHDRAWALS MUST BE PERMITTED.—A simplified employee pension meets the requirements of this paragraph only if— "(A) employer contributions thereto are not conditioned on the retention in such pension of any portion of the amount contributed, and "(B) there is no prohibition imposed by the employer on withdrawals from the simplified employee pension. "(5) CONTRIBUTIONS MUST BE MADE UNDER WRITTEN ALLOCATION FORMULA.—The requirements of this paragraph are met with respect to a simplified employee pension only if employer contri- butions to such pension are determined under a definite written allocation formula which specifies— "(A) the requirements which an employee must satisfy to share in an allocation, and "(B) the manner in which the amount allocated is computed. "(6) DEFINITIONS.—For purposes of this subsection and subsec- tion (D— "(A) EMPLOYEE, EMPLOYER, OR OWNER-EMPLOYEE.—The terms 'employee', 'employer', and 'owner-employee' shall have the respective meanings given such terms by section 26 use 401. 401(c). "(B) COMPENSATION.—The term'compensation'means, in the case of an employee within the meaning of section 401(c)(1), earned income within the meaning of section " 401(c)(2). "(1) SiMPUFiED EMPLOYER REPORTS.—An employer who makes a contribution on behalf of an employee to a simplified employee pension shall provide such simplified reports with respect to such contributions as the Secretary may require by regulations. The reports required by this subsection shall be filed at such time and in such manner, and information with respect to such contributions shall be furnished to the employee at such time and in such manner, as may be required by regulations." 26 use 219. (c) MAXIMUM DEDUCTION UNDER SECTION 219.—Subsection (b) of section 219 (relating to maximum deduction in the case of retirement
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2799 savings) is amended by adding at the end thereof the following new paragraph: *'(7) SiMPUFiED EMPLOYEE PENSIONS.—In the case of an employer contribution on behalf of the employee to a simplified employee pension, paragraph (2) shall not apply with respect to the employer contribution and the limitation under paragraph (1) shall be the lesser of— "(A) 15 percent of compensation includible in the employ- ee's gross income for the taxable year (determined without regard to the employer contribution to the simplified employee pension), or "(B) the sum of— "(i) the amount contributed by the employer to the simplified employee pension and included in gross income (but not in excess of $7,500), and "(ii) $1,500, reduced (but not below zero) by the amount described in clause (i). In the case of an employee who is an officer, shareholder, or owner-employee described in section 408(k)(3), the amount 26 USC 408. referred to in subparagraph (B) shall be reduced by the amount of tax taken into account with respect to such individual under subparagraph (D) of section 408(k)(3)." (d) EMPLOYEES OF ENTERPRISES UNDER COMMON CONTROL.—Subsec- tions (b) and (c) of section 414 are each amended by inserting "408(k)," 26 use 414. after "401,". (e) SIMPLIFIED EMPLOYEE PENSION MAY B E TAKEN INTO ACCOUNT IN DETERMINING WHETHER EMPLOYER MEETS CERTAIN OTHER NONDIS- CRIMINATION PROVISIONS.—Paragraph (5) of section 401(a) is amended 26 use 401. by adding at the end thereof the following new sentence: "For purposes of determining whether one or more plans of an employer satisfy the requirements of paragraph (4) and of section 410(b), an 26 use 410. employer may take into account all simplified employee pensions to which only the employer contributes." (f) EMPLOYER DEDUCTIONS.—Section 404 (relating to deduction for 26 use 404. contributions of an employer) is amended by adding the following new subsection at the end thereof: "(h) SPECIAL RULES FOR SIMPUFIED EMPLOYEE PENSIONS.— "(1) IN GENERAL,—Employer contributions to a simplified employee pension shall be treated as if they are made to a plein subject to the requirements of this section. Employer contribu- tions to a simplified employee pension are subject to the follow- ing limitations: "(A) Contributions made for a calendar year are deduct- ible for the taxable year with which or within which the calendar year ends. "(B) Contributions made within dVz months after the close of a calendar year are treated as if they were made on the last day of such calendar year if they are made on account of such calendar year. "(C) The amount deductible in a taxable year for a simpli- fied employee pension shall not exceed 15 percent of the compensation paid to the employees during the calendar year ending with or within the taxable year. The excess of the amount contributed over the amount deductible for a taxable year shall be deductible in the succeeding taxable years in order of time, subject to the 15 percent limit of the preceding sentence.
92 STAT. 2800 PUBLIC LAW 95-600—NOV. 6, 1978 "(2) EFFECT ON STOCK BONUS AND PROFIT-SHARING TRUST.—For any taxable year for which the employer has a deduction under spbparagraph (1), the otherwise applicable limitations in subsec- tion (a)(3)(A) shall be reduced by the amount of the allowable deductions under subparagraph (1) with respect to participants in the stock bonus or profit-sharing trust. "(3) EFFECT ON LIMIT ON DEDUCTIONS.—For any taxable year for which the employer has a deduction under subparagraph (1), the otherwise applicable 25 percent limitations in subsection (a)(7) shall be reduced by the amount of the allowable deductions under subparagraph (1) with respect to participants in the stock bonus or profit-sharing trust. "(4) EFFECT ON SELF-EMPLOYED INDIVIDUALS.—The limitations described in paragraphs (1), (2)(A), and (4) of subsection (e) for any taxable year shall be reduced by the amount of the allowable deductions under subparagraph (1) with respect to an employee 26 use 401. within the meaning of section 401(c)(1)." 26 use 415. (g) AMENDMENTS TO SECTION 415.—Section 415 (relating to limita- tions on benefits and contributions under certain plans) is amended— (1) by redesignating subparagraphs (E) and (F) of subsection (a)(2) as subparagraphs (F) and (G) and by inserting after subpar- agraph (D) the following new subparagraph: "(E) a simplified employee pension,"; (2) by inserting "408(k)," after "408(b)," in the material imme- diately following subparagraph (G) of section 415(b)(2); (3) by inserting "any simplified employee pension," after "section 408(b)," in section 415(e)(5); and (4) by striking out "or" in section 415(k)(l)(F), by redesignating subparagraph (G) of section 415(k)(l) as subparagraph (H), and by inserting after section 415(k)(l)(F) the following new subparagraph: "(G) a simplified employee pension, or". 26 use 408 (h) EFFECTIVE DATE.—The amendments made by this section shall note. apply to taxable years beginning after December 31,1978. SEC. 153. DEFINED BENEFIT PLAN LIMITS. 26 use 415. (a) IN GENERAL.—Subsection (b) of section 415 (relating to limita- tion for defined benefit plans) is amended by adding at the end thereof the following new paragraph: "(7) BENEFITS UNDER CERTAIN COLLECTIVELY BARGAINED PLANS.—For a year, the limitation referred to in paragraph (1)(B) shall not apply to benefits with respect to a participant under a defined benefit plan— "(A) which is maintained for such year pursuant to a collective bargaining agreement between employee repre- sentatives and one or more employers, "(B) which, at all times during such year, has at least 100 participants, "(C) benefits under which are determined by multiplying a specified amount (which is the same amount for each partici- pant) by the number of the participant's years of service, "(D) which provides that an employee who has at least 4 years of service has a nonforfeitable right to 100 percent of his accrued benefit derived from employer contributions, and "(E) which requires, as a condition of participation in the plan, that an employee complete a period of not more than
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2801 60 consecutive days of service with the employer or employ- ers maintaining the plan. This paragraph shall not apply to a participant whose compensa- tion for any 3 years during the 10-year period immediately preceding the year in which he separates from service exceeded the average compensation for such 3 years of all participants in such plan. For any year for which the paragraph applies to benefits with respect to a participant, paragraph (1)(A) and subsection (d)(1)(A) shall be applied with respect to such partici- pant by substituting '37,500' for '75,000'." (b) EFFECTIVE DATE.—The amendment made by this section shall 26 use 415 apply to years beginning after December 31,1978. "ote. SEC. 154. CUSTODIAL ACCOUNTS FOR REGULATED INVESTMENT COM- PANY STOCK. (a) AMENDMENT OF SECTION 403.—Subparagraph (A) of section 403(b)(7) (relating to custodial accounts for regulated investment 26 USC 403. company stock) is amended to read as follows: "(A) AMOUNTS PAID TREATED AS CONTRIBUTIONS.—For pur- poses of this title, amounts paid by an employer described in paragraph (1)(A) to a custodial account which satisfied the requirements of section 401(f)(2) shall be treated as amounts 26 USC 401. contributed by him for an annuity contract for his employee if— "(i) the amounts are to be invested in regulated investment company stock to be held in that custodial account, and "(ii) under the custodial account no such amounts may be paid or made available to any distributee before the employee dies, attains age 59 y2, separates from service, becomes disabled (within the meaning of section 72(m)(7)), or encounters financial hardship." 26 USC 72. (b) EFFECTIVE DATE.—The amendment made by this section shall 26 USC 403 apply to taxable years beginning after December 31,1978. "o^e. SEC. 155. PENSION PLAN RESERVES. (a) I N GENERAL.—Subsection (d) of section 805 (relating to pension 26 USC 805. plan reserves) is amended— (1) by striking out "or" at the end of paragraph (4); (2) by striking out the period at the end of paragraph (5) and inserting in lieu thereof "; or"; and (3) by adding at the end thereof the following new paragraph: "(6) purchased by— "(A) a governmental plan (within the meaning of section 414(d)), or 26 USC 414. "(B) the Government of the United States, the government of any State or political subdivision thereof, or by any agency or instrumentality of the foregoing, for use in satisfying an obligation of such government, political subdivision, or agency or instrumentality to provide a benefit under a plan described in subparagraph (A)." Ob) EFFECTIVE DATE.—The amendments made by this section apply 26 USC 805 to taxable years beginning after December 31,1978. "ot^- SEC. 156. ROLLOVER OF SECTION 403(b) ANNUITIES PERMITTED. (a) GENERAL RULE.—Subsection (b) of section 403 (relating to 26 USC 403. taxability of beneficiary under annuity purchased by section 501(c)(3) 26 USC 501. organization or public school) is amended by adding at the end thereof the following new paragraph:
92 STAT. 2802 PUBLIC LAW 95-600—NOV. 6, 1978 ) "(8) ROLLOVER AMOUNTS.— ^ "(A) GENERAL RULE.—If— "(i) the balance to the credit of an employee is paid to him in a qualifying distribution, "(ii) the employee transfers any portion of the prop- erty he receives in such distribution to an individual retirement plan or to an annuity contract described in paragraph (1), and "(iii) in the case of a distribution of property other than money, the property so transferred consists of the property distributed, then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid. "(B) QUALIFYING DISTRIBUTION DEFINED.— "(i) IN GENERAL.—For purposes of subparagraph (A), the term 'qualifying distribution' means 1 or more distributions from an annuity contract described in paragraph (1) which would constitute a lump sum distri- 26 use 402. bution within the meaning of section 402(e)(4)(A) (deter- mined without regard to subparagraphs (B) and (H) of section 402(e)(4)) if such annuity contract were described in subsection (a). "(ii) AGGREGATION OF ANNUITY CONTRACTS.—For pur- poses of this paragraph, all annuity contracts described in paragraph (1) purchased by an employer shall be treated as a single contract, and section 402(e)(4)(C) shall not apply. "(C) CERTAIN RULES MADE APPUCABLE.—Rules similar to the rules of subparagraphs (B), (C), and (E)(i) of section 402(a)(5) and of paragraphs (6) and (7) of section 402(a) shall apply for purposes of subparagraph (A)." 26 use 403. (b) TREATMENT OF ROLLOVER CONTRIBUTIONS.—Section 403(b)(1) (relating to annuities purchased by certain exempt organizations and public schools) is amended by adding at the end thereof the following new sentence: "For purposes of applying the rules of this subsection to amounts contributed by an employer for a taxable year, amounts transferred to a contract described in this paragraph by reason of a rollover contribution described in paragraph (8) of this subsection or 26 use 408, section 408(d)(3)(A)(iii) or 409(d)(3)(C) shall not be considered contrib- ^^^- uted by such employer." (c) TECHNICAL AND CONFORMING AMENDMENTS.— 26 use 408. (1) Subparagraph (A) of section 408(d)(3) is amended by striking out "or" at the end of clause (i), by striking out the period at the end of clause (ii) and inserting in lieu thereof "; or", and by adding at the end thereof the following new clause: "(iii)(l) the entire amount received (including money and other property) represents the entire interest in the account or the entire value of the annuity, "(II) no amount in the account and no part of the value of the annuity is attributable to any source other than a rollover contribution from an annuity contract 26 use 403. described in section 403(b) and any earnings on such rollover, and "(III) the entire amount thereof is paid into another annuity contract described in section 4030t)) (for the
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2803 benefit of such individual) not later than the 60th day after he receives the payment or distribution." (2) Subparagraph (C) of section 409(b)(3) is amended— 26 u s e 409. (A) by striking out "or an annuity plan described in section 403(a)" in the first sentence and inserting in lieu thereof "an 26 u s e 403. annuity plan described in section 403(a), or an annuity contract described in section 403(b)", and (B) by adding at the end thereof the following new sen- tence: This subparagraph does not apply in the case of a transfer to an annuity contract described in section 403(b) unless no part of the value of such proceeds is attributable to any source other than a rollover contribution from such an annuity contract." (3) Sections 219(b)(4), 220(b)(5), 408(a)(1), 409(a)(4), and 26 u s e 219, 4973(b)(1)(A) are each amended by inserting "403(b)(8)," after 220, 408, 409, "403(a)(4)," each place it appears. 4973. (4) Section 2039(e) is amended by inserting after "403(a)(4)," the 26 u s e 2039. following: "section 403(b)(8) (but only to the extent such contribu- tion is attributable to a distribution from a contract described in subsection (c)(3)),". (5) Section 4973(c)(1) is amended by inserting after "account" 26 u s e 4973. the following: "(other than a rollover contribution described in section 403(b)(8), 408(d)(3)(A)(iii), or 409(d)(3)(C))". (d) EFFECTIVE DATE.—The amendments made by this section shall 26 u s e 403 apply to distributions or transfers made after December 31,1978, in note. taxable years beginning after such date. SEC. 157. INDIVIDUAL RETIREMENT ACCOUNT TECHNICAL CHANGES. (a) EXTENSION OF PERIOD FOR MAKING INDIVIDUAL RETIREMENT PLAN CONTRIBUTIONS.— (1) AMENDMENT OF SECTION 219(C)(3).—Paragraph (3) of section 26 u s e 219. 219(c) (relating to time when contributions deemed made in the case of retirement savings) is amended by striking out "not later than 45 days after the end of such taxable year" and inserting in lieu thereof "not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)'. (2) AMENDMENT OF SECTION 220(c)(4).—Paragraph (4) of section 26 use 220. 220(c) (relating to time when contributions deemed made in the case of retirement savings for certain married individuals) is amended by striking out "not later than 45 days after the end of such taxable year" and inserting in lieu thereof "not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)". (3) EFFECTIVE DATE.—The amendments made by this subsection 26 u s e 219 shall apply to taxable years beginning after December 31, 1977. note. (b) EXCESS CONTRIBUTIONS MAY B E DEDUCTED IN SUBSEQUENT YEAR FOR WHICH THERE IS AN UNUSED LIMITATION.— (1) AMENDMENT OF SECTION 219.—Subsection (c) of section 219 26 use 219 (relating to definitions and special rules for retirement savings) is amended by adding at the end thereof the following new paragraph: "(5) EXCESS CONTRIBUTIONS TREATED AS CONTRIBUTION MADE DURING SUBSEQUENT YEAR FOR WHICH THERE IS AN UNUSED LIMITATION.— "(A) I N GENERAL.—If for the taxable year the maximum amount allowable as a deduction under this section exceeds the amount contributed, then the taxpayer shall be treated
92 STAT. 2804 PUBLIC LAW 95-600—NOV. 6, 1978 as having made an additional contribution for the taxable year in an amount equal to the lesser of— "(i) the amount of such excess, or "(ii) the amount of the excess contributions for such 26 use 4973. taxable year (determined under section 4973(b)(2) with- out regard to subparagraph (C) thereof). "(B) AMOUNT CONTRIBUTED.—For purposes of this para- graph, the amount contributed— "(i) shall be determined without regard to this para- graph, and "(ii) shall not include any rollover contribution. "(C) SPECIAL RULE WHERE EXCESS DEDUCTION WAS ALLOWED FOR CLOSED YEAR.—Proper reduction shall be made in the amount allowable as a deduction by reason of this paragraph for any amount allowed as a deduction under this section or Infra. section 220 for a prior taxable year for which the period for assessing deficiency has expired if the amount so allowed exceeds the amount which should have been allowed for such prior taxable year." 26 use 220. (2) AMENDMENT OF SECTION 220.—Subsection (c) of section 220 (relating to definitions and special rules for retirement savings for certain married individuals) is amended by adding at the end thereof the following new paragraph: "(6) EXCESS CONTRIBUTIONS TREATED AS CONTRIBUTION MADE DURING SUBSEQUENT YEAR FOR WHICH THERE IS AN UNUSED LIMITA- TION.— "(A) I N GENERAL.—If for the taxable year the maximum amount allowable as a deduction under this section exceeds the amount contributed, then the taxpayer shall be treated as having made an additional contribution for the taxable year in an amount equal to the lesser of— "(i) the amount of such excess, or "(ii) the amount of the excess contributions for such taxable year (determined under section 4973(b)(2) with- out regard to subparagraph (C) thereof). ,i "(B) AMOUNT CONTRIBUTED.—For purposes of this para- graph, the amount contributed— "(i) shall be determined without regard to this para- graph, and "(ii) shall not include any rollover contribution. "(C) SPECIAL RULE WHERE EXCESS DEDUCTION WAS ALLOWED FOR CLOSED YEAR.—Proper reduction shall be made in the amount allowable as a deduction by reason of this paragraph for any amount allowed as a deduction under this section or Ante, p. 2803. section 219 for a prior taxable year for which the period for assessing a deficiency has expired if the amount so allowed exceeds the amount which should have been allowed for such prior taxable year." 26 use 4973. (3) AMENDMENT OF SECTION 4973.—Paragraph (2) of section 4973(b) (defining excess contributions) is amended to read as follows: "(2) the amount determined under this subsection for the preceding taxable year reduced by the sum of— "(A) the distributions out of the account for the taxable year which were included in the gross income of the payee 26 use 408. under section 408(d)(1),
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2805 "(B) the distributions out of the account for the taxable year to which section 408(d)(5) applies, and 26 use 408. "(C) the excess (if any) of the maximum amount allowable as a deduction under section 219 or 220 for the taxable year ^^^e, pp. 2803, over the amount contributed (determined without regard to ^^^'*- sections 219(cX5) and 220(c)(6)) to the accounts or for the annuities or bonds for the taxable year." (4) EFFECTIVE DATE.— 26 u s e 219 (A) I N GENERAL.—The amendments made by this subsec- "°*^- tion shall apply to the determination of deductions for taxable years beginning after December 31,1975. (B) TRANSITIONAL RULE.—If, but for this subparagraph, an amount would be allowable as a deduction by reason of section 219(cX5) or 220(c)(6) of the Internal Revenue Code of 1954 for a taxable year beginning before January 1, 1978, such amount shall be allowable only for the taxpayer's first taxable year beginning in 1978. (c) ADDITIONAL PERIOD TO RECTIFY CERTAIN EXCESS CONTRIBU- TIONS.— (1) GENERAL RULE.—Subsection (d) of section 408 (relating to 26 use 408. tax treatment of distributions) is amended by redesignating paragraph (5) as paragraph (6) and by inserting after paragraph (4) the following new paragraph: "(5) CERTAIN DISTRIBUTIONS OF EXCESS CONTRIBUTIONS AFTER DUE DATE FOR TAXABLE YEAR.— "(A) I N GENERAL.—In the case of any individual, if the aggregate contributions (other than rollover contributions) paid for any taxable year to an individual retirement account or for an individual retirement annuity do not exceed $1,750, paragraph (1) shall not apply to the distribu- tion of any such contribution to the extent that such contri- bution exceeds the amount allowable as a deduction under section 219 or 220 for the taxable year for which the contribution was paid— "(i) if such distribution is received after the date described in paragraph (4), "(ii) but only to the extent that no deduction has been allowed under section 219 or 220 with respect to such excess contribution. "(B) EXCESS ROLLOVER CONTRIBUTIONS ATTRIBUTABLE TO ERRO- NEOUS INFORMATION.—If— "(i) the taxpayer reasonably relies on information supplied pursuant to subtitle F for determining the amount of a rollover contribution, but "(ii) such information was erroneous, subparagraph (A) shall be applied by increasing the dollar limit set forth therein by that portion of the excess contribution which was attributable to such information." (2) EFFECTIVE DATE.— 26 use 408 (A) IN GENERAL.—The amendments made by paragraph (1) "ote. shall apply to distributions in taxable years beginning after December 31,1975. (B) TRANSITIONAL RULE.—In the case of contributions for taxable years beginning before January 1, 1978, paragraph (5) of section 408(d) of the Internal Revenue Code of 1954 Supra. shall be applied as if such paragraph did not contain any dollar limitation.
92 STAT. 2806 PUBLIC LAW 95-600—NOV. 6, 1978 (d) REQUIREMENT THAT ANNUITY CONTRACTS WILL QUALIFY AS INDIVIDUAL RETIREMENT ANNUITY ONLY IF THE PREMIUMS ARE FLEXIBLE.— 26 use 408. (1) I N GENERAL.—Paragraph (2) of section 408(b) (defining individual retirement annuity) is amended to read as follows: "(2) Under the contract— "(A) the premiums are not fixed, "(B) the annual premium will not exceed $1,500, and "(C) any refund of premiums will be applied before the close of the calendar year following the year of the refund toward the payment of future premiums or the purchase of additional benefits." 26 use 408 (2) EFFECTIVE DATE.—The amendment made by paragraph (1) "ot^- shall apply to contracts issued after the date of the enactment of this Act. 26 use 408 (3) TAX REUEF FOR FIXED PREMIUM CONTRACTS HERETOFORE not^- ISSUED.—In the case of any annuity or endowment contract issued on or before the date of the enactment of this Act which would be an individual retirement annuity within the meaning of section 408(b) of the Internal Revenue Code of 1954 (as amended by paragraph (1)) but for the fact that the premiums c under the contract are fixed, at the election of the taxpayer an exchange before January 1,1981, of that contract for an individual retirement annuity within the meaning of such section 408(b) (as amended by paragraph (1)) shall be treated as a nontaxable exchange which does not constitute a distribution. (e) CLARIFICATION OF DOLLAR LIMIT IN THE CASE OF INDIVIDUAL RETIREMENT ANNUITIES AND RETIREMENT BONDS.— (1) I N GENERAL.— (A) AMENDMENT OF SECTION 408(b)(2).—Subparagraph (B) of section 408(b)(2) (as amended by paragraph (1) of subsec- tion (d)) is amended by inserting "on behalf of any individual" after "annual premium". 26 use 409. (B) AMENDMENT OF SECTION 409(a)(4).—Paragraph (4) of section 409(a) (relating to retirement bonds) is amended by inserting "on behalf of any individual" after "May not contribute". 26 use 408 (2) EFFECTIVE DATE.—The amendments made by paragraph (1) "ote. shall apply to taxable years beginning after December 31, 1976. 26 use 402. (f) ROLLOVER OF PROCEEDS FROM SALE OF PROPERTY PERMITTED,— (1) ROLLOVERS FROM QUAUFIED EMPLOYEES' TRUSTS AND ANNU- ITIES.—Paragraph (6) of section 402(a) (relating to special rollover rules) is amended by adding at the end thereof the following new subparagraph: "(D) SALES OF DISTRIBUTED PROPERTY.—For purposes of subparagraphs (5) and (7)— "(i) TRANSFER OF PROCEEDS FROM SALE OF DISTRIBUTED PROPERTY TREATED AS TRANSFER OF DISTRIBUTED PROP- ERTY,—The transfer of an amount equal to any portion of the proceeds from the sale of property received in the distribution shall be treated as the transfer of property s ; received in the distribution. "(ii) PROCEEDS ATTRIBUTABLE TO INCREASE IN VALUE.— The excess of fair market value of property on sale over its fair market value on distribution shall be treated as property received in the distribution.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2807 "(iii) DESIGNATION WHERE AMOUNT OF DISTRIBUTION EXCEEDS ROLLOVER CONTRIBUTION.—In any CESG whcre part or all of the distribution consists of property other than money, the taxpayer many designate— "(I) the portion of the money or other property which is to be treated as attributable to employee contributions, and "(11) the portion of the money or other property which is to be treated as included in the rollover contribution. Any designation under this clause for a taxable year shall be made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). Any such designation, once made, shall be irrevocable. "(iv) TREATMENT WHERE NO DESIGNATION.—In any case where part or all of the distribution consists of property other than money and the taxpayer fails to make a designation under clause (iii) within the time provided therein, then— "(I) the portion of the money or other property which is to be treated as attributable to employee contributions, and "(II) the portion of the money or other property which is to be treated as included in the rollover contribution shall be determined on a ratable basis. "(v) NONRECOGNITION OF GAIN OR LOSS.—In the case of any sale described in clause (i), to the extent that an amount equal to the proceeds is transferred pursuant to paragraph (5)(B) or (7XB) (as the case by be), neither gain nor loss on such sale shall be recognized." (2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 use 402 shall apply to qualifying rollover distributions (as defined in "o*^- section 402(a)(5)(D)(i) of the Internal Revenue Code of 1954) Ante, p. 2806. completed after December 31,1978, in taxable years ending after such date, (g) DISTRIBUTION FROM EMPLOYEES' QUALIFIED PLAN OR ANNUITY TO SPOUSE MAY B E ROLLOVER CONTRIBUTION TO AN INDIVIDUAL RETIRE- MENT PLAN.— (1) ROLLOVERS FROM QUALIFIED EMPLOYEES' TRUST.—Subsection 26 use 402. (a) of section 402 (relating to taxability of beneficiary of exempt trust) is amended by adding at the end thereof the following new paragraph: "(7) ROLLOVER WHERE SPOUSE RECEIVES LUMP-SUM DISTRIBUTION AT DEATH OF EMPLOYEE.— "(A) GENERAL RULE.—If— "(i) any portion of a lump-sum distribution from a qualified trust is paid to the spouse of the employee on account of the employee's death, "(ii) the spouse transfers any portion of the property which the spouse receives in such distribution to an individual retirement plan, and "(iii) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed,
92 STAT. 2808 PUBLIC LAW 95-600—NOV. 6, 1978 then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid. "(B) CERTAIN RULES MADE APPLICABLE.—Rules similar to the rules of subparagraphs (B) through (E) of paragraph (5) and of paragraph (6) shall apply for purposes of this paragraph." 26 use 403. (2) ROLLOVER FROM QUALIFIED ANNUITY PLANS.—Subparagraph (B) of section 403(a)(4), as amended by section 21(b), is amended by striking out "paragraph (6)" and inserting lieu thereof "para- graphs (6) and (7)". 26 u s e 408. (3) N o ROLLOVER TO QUALIFIED PLAN OR ANNUITY FROM IRA TO WHICH SPOUSE MADE ROLLOVER CONTRIBUTION.—Subparagraph (B) of section 408(d)(3) is amended by adding at the end thereof the following: "Clause (ii) of subparagraph (A) shall not apply to any amount paid or distributed out of an individual retirement account or an individual retirement annuity to which an amount was contributed which was treated as a rollover contribution by Ante, p. 2807. section 402(a)(7) (or in the case of an individual retirement 26 use 403. annuity, such section as made applicable by section 403(a)(4)(B))." 26 use 402 (4) EFFECTIVE DATE.—The amendments made by this subsection "°^^- shall apply to lump-sum distributions completed after Decem- ber 31,1978, in taxable years ending after such date. Ante, p. 2806. (h) REMOVAL OF CERTAIN REQUIREMENTS.— (1) DISREGARD OF 5-YEAR MINIMUM PARTICIPATION RULE FOR PURPOSES OF ROLLOVERS.—Subclause (II) of section 402(a)(5)(D)(i) is amended by striking out "subsection (e)(4)(B)" and inserting in lieu thereof "subparagraphs (B) and (H) of subsection (e)(4)". 26 use 408. (2) REDUCTION OF REQUIRED PERIOD BETWEEN ROLLOVER CONTRI- BUTIONS FROM 3 YEARS TO 1 YEAR.—The first Sentence of subpara- graph (B) of section 408(d)(3) is amended by striking out "3-year period" and inserting in lieu thereof "1-year period". 26 use 402 (3) EFFECTIVE DATE.— ^^^^- (A) I N GENERAL.—The amendments made by this section shall apply to payments made in taxable years beginning after December 31,1977. (B) TRANSITIONAL RULE.—In the case of any payment which is described in section 402(a)(5)(A) or 403(a)(4)(A) of the 26 use 402, Internal Revenue Code of 1954 by reason of the amendments 403 made by this section, the applicable period specified in section 402(a)(5)(C) of such Code (or in the case of an individual retirement annuity, such section as made applica- ble by section 403(a)(4)(B) of such Code) shall not expire before the close of December 31,1978. (i) WAIVER OF EXCISE TAX ON CERTAIN ACCUMULATIONS IN INDIVID- UAL RETIREMENT ACCOUNTS OR ANNUITIES.— 26 use 4974. (1) GENERAL RULE.—Section 4974 (relating to excise tax on certain accumulations in individual retirement accounts or annuities) is amended by adding at the end thereof the following new subsection: "(c) WAIVER OF TAX IN CERTAIN CASES.—If the taxpayer establishes to the satisfaction of the Secretary that— "(1) the shortfall described in subsection (a) in the amount distributed during any taxable year was due to reasonable error, and "(2) reasonable steps are being taken to remedy the shortfall,
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2809 the Secretary may waive the tax imposed by subsection (a) for the taxable year." (2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 u s e 4974 shall apply to taxable years beginning after December 31, 1975. note. (j) REMOVAL OF CERTAIN LIMITATIONS ON PROVISION ALLOWING CORRECTION OF EXCESS CONTRIBUTIONS.— (1) GENERAL RULE.—The last sentence of section 4973(b) (defin- 26 u s e 4973. ing excess contributions) is amended to read as follows: "For purposes of this subsection, any contribution which is distributed from the individual retirement account, individual retirement annuity, or bond in a distribution to which section 408(d)(4) 26 u s e 408. applies shall be treated as an amount not contributed." (2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 u s e 4973 shall apply to contributions made for taxable years beginning note. after December 31,1977. (k) SIMPLIFICATION OF RETURN REQUIREMENTS WITH RESPECT TO INDIVIDUAL RETIREMENT PLANS.— (1) I N GENERAL.—Section 6058 (relating to information 26 u s e 6058. required in connection with certain plans of deferred compensa- tion) is amended by redesignating subsection (d) as subsection (f) and by striking out subsection (c) and inserting in lieu thereof the following new subsections. "(c) EMPLOYER.—For purposes of this section, the term 'employer* includes a person described in section 401(c)(4) and an individual who 26 u s e 401. establishes an individual retirement plan. "(d) COORDINATION WITH INCOME TAX RETURNS, ETC.—An individ- ual who establishes an individual retirement plan shall not be required to file a return under this section with respect to such plan for any taxable year for which there is— "(1) no special IRP tax, and "(2) no plan activity other than— "(A) the making of contributions (other than rollover contributions), and "(B) the making of distributions. "(e) SPECIAL IRP TAX DEFINED.—For purposes of this section, the term 'special IRP tax' means a tax imposed by— "(1) section 408(f), 26 use 408. "(2) section 409(c), 26 use 4090. "(3) section 4973, or 26 use 4973. "(4) section 4974.". 26 use 4974. (2) INDIVIDUAL RETIREMENT PLAN DEFINED.—Subsection (a) of section 7701 (relating to definitions of general application 26 u s e 7701. throughout the Code) is amended by adding at the end thereof the following new paragraph: "(37) INDIVIDUAL RETIREMENT PLAN.—The term 'individual retirement plan' means— "(A) an individual retirement account described in section 408(a), 26 u s e 408. "(B) an individual retirement annuity described in section 408(b), and "(C) a retirement bond described in section 409." 26 u s e 409. (3) EFFECTIVE DATE.—The amendments made by paragraph (1) 26 use 6058 shall apply to returns for taxable years beginning after Decem- note. ber 31,1977. The amendment made by paragraph (2) shall apply to taxable years beginning after December 31,1974. 39-194 O - -pt. 3 12 : QL3
92 STAT. 2810 PUBLIC LAW 95-600—NOV. 6, 1978 Subtitle F—Other Individual Items SEC. 161. CERTAIN GOVERNMENT SCHOLARSHIP AND AWARD PRO- GRAMS, (a) GOVERNMENT HEALTH PROFESSION SCHOLARSHIP PROGRAMS.— Subsection (c) of section 4 of the Act entitled "An Act to suspend until the close of June 30, 1975, the dutv on certain carboxymethyl cellulose salts, and for other purposes (Public Law 93-483; 88 Stat. 26 u s e 117 1457) approved October 26,1974, is amended— note. (1) by striking out "1979" and inserting in lieu thereof "1980", and (2) by striking out "1983" and inserting in lieu thereof "1984". 26 u s e 117 (b) NATIONAL RESEARCH SERVICE AWARDS.— Bote. (1) GENERAL RULE.—Any amount paid to, or on behalf of, an individual from appropriated funds as a national research serv- 42 u s e 289/--1 ice award under section 472 of the Public Health Service Act shall be treated as a scholarship or fellowship grant under 26 u s e 117. section 117 of the Internal Revenue Code of 1954. (2) EFFECTIVE DATE.—The provisions of subsection (b) shall apply to awards made during calendar years 1974 through 1979. SEC. 162. CANCELLATION OF STUDENT LOANS. 26 use 61 note. Subsection (c) of section 2117 of the Tax Reform Act of 1976 (relating to cancellation of certain student loans) is amended by striking out "Janu- ary 1,1979" and inserting in lieu thereof "Janu- ary 1,1983". SEC. 163. TAX COUNSELING FOR THE ELDERLY. 26 use 7803 (a) TRAINING AND TECHNICAL ASSISTANCE.— "o*^- (1) AGREEMENTS.—The Secretary, through the Internal Reve- nue Service, is authorized to enter into agreements with private or public nonprofit agencies or organizations for the purpose of providing training and technical assistance to prepare volun- teers to provide tax counseling assistance for elderly individuals in the preparation of their Federal income tax returns. (2) OTHER ASSISTANCE.—In addition to any other forms of technical assistance provided under this section, the Secretary may provide— (A) preferential access to Internal Revenue Service tax- payer service representatives for the purpose of making available technical information needed during the course of the volunteers'work; (B) material to be used in making elderly persons aware of the availability of assistance under volunteer taxpayer assistance programs under this section; and (C) technical materials and publications to be used by such volunteers. (b) POWERS OF THE SECRETARY.—In carrying out his responsibilities '' under this section, the Secretary is authorized— (1) to provide assistance to organizations which demonstrate, to the satisfaction of the Secretary, that their volunteers are adequately trained and competent to render effective tax coun- seling to the elderly; (2) to provide for the training of such volunteers, and to assist in such training, to insure that such volunteers are qualified to provide tax counseling assistance to elderly individuals;
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2811 (3) to provide reimbursement to volunteers through such organizations for transportation, meals, and other expenses incurred by them in training or providing tax counseling assist- ance under this section, and such other support and assistance as he determines to be appropriate in carrying out the provisions of this section; (4) to provide for the use of services, personnel, and facilities of Federal executive agencies and of State and local public agencies with their consent, with or without reimbursement therefor; and (5) to prescribe such rules and regulations as he deems neces- Rules and sary to carry out the provisions of this section. regulations. (c) EMPLOYMENT OF VOLUNTEERS.— (1) IN GENERAL.—Service as a volunteer in any program carried out under this section shall not be considered service as an employee of the United States. Volunteers under such a program shall not be considered Federal employees and shall not be subject to the provisions of law relating to Federal employment, except that the provisions of section 1905 of title 18, United States Code, shall apply to volunteers as if they were employees of the United States. (2) EXPENSES.—Amounts received by volunteers serving in any program carried out under this section as reimbursement for expenses are exempt from taxation under chapters 1 and 21 of the Internal Revenue Code of 1954. 26 USC 1 et seq., (d) PUBLICITY RELATING TO INCOME TAX PROVISIONS PARTICULARLY 3101 e< seq. IMPORTANT TO THE ELDERLY.—The Secretary shall, from time to time, undertake to direct the attention of elderly individuals to those provisions of the Internal Revenue Code of 1954 which are particu- larly important to taxpayers who are elderly individuals, such as the provisions of section 37 (relating to credit for the elderly) and section 121 (relating to one-time exclusion of gain from sale of principal residence) of the Internal Revenue Code of 1954, 26 USC 37,121. (e) DEFINITIONS.—For purposes of this section— (1) The term "Secretary" means the Secretary of the Treasury or his delegate. (2) The term "elderly individual" means an individual who has attained the age of 60 years as of the close of his taxable year. (3) The term "Federal income tax return" means any return required under chapter 61 of the Internal Revenue Code of 1954 26 USC 6001 et with respect to the tax imposed on an individual under chapter 1 ^^q- of s u c h Code. 26 USC l et seq. (f) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to be appropriated for the purpose of carrying out the provisions of this section $2,500,000 for the fiscal year ending September 30, 1979, and $3,500,000 for the fiscal year ending September 30,1980. SEC. 164. EXCLUSION OF VALUE OF CERTAIN EDUCATIONAL ASSISTANCE PROGRAMS. (a) IN GENERAL.—Part III of subchapter B of chapter 1 (relating to items specifically excluded from gross income) is amended by redesig- nating section 127 as 128 and by inserting after section 126 the 26 USC 128. following new section: "SEC. 127. EDUCATIONAL ASSISTANCE PROGRAMS. 26 USC 127. "(a) GENERAL RULE,—Gross income of an employee does not include amounts paid or expenses incurred by the employer for educational assistance to the employee if the assistance is furnished pursuant to a program which is described in subsection (b).
92 STAT. 2812 PUBLIC LAW 95-600—NOV. 6, 1978 "(b) EDUCATIONAL ASSISTANCE PROGRAM.— "(1) IN GENERAL.—For purposes of this section an educational assistance program is a separate written plan of an employer for the exclusive benefit of his employees to provide such employees with educational assistance. The program must meet the require- ments of paragraphs (2) through (6) of this subsection. "(2) ELIGIBILITY.—The program shall benefit employees who qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of employees who are officers, owners, or highly compensated, or their depend- ents. For purposes of this paragraph, there shall be excluded from consideration employees not included in the program who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that educational assistance bene- fits were the subject of good faith bargaining between such employee representatives and such employer or employers. "(3) PRINCIPAL SHAREHOLDERS OR OWNERS.—Not more than 5 percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer. "(4) OTHER BENEFITS AS AN ALTERNATIVE.—A program must not provide eligible employees with a choice between educational assistance and other remuneration includible in gross income. For purposes of this section, the business practices of the employer (as well as the written program) will be taken into account. "(5) No FUNDING REQUIRED.—A program referred to in para- graph (1) is not required to be funded. "(6) NOTIFICATION OF EMPLOYEES.—Reasonable notification of the availability and terms of the program must be provided to eligible employees. "(c) DEFINITIONS; SPECIAL RULES.—For purposes of this section— "(1) EDUCATIONAL ASSISTANCE.—The term 'educational assist- ance' means— . "(A) the payment, by an employer, of expenses incurred by or on behalf of an employee for education of the employee (including, but not limited to, tuition, fees, and similar payments, books, supplies, and equipment), and "(B) the provision, by an employer, of courses of instruc- tion for such employee (including books, supplies, and equip- ment), but does not include payment for, or the provision of, tools or supplies which may be retained by the employee after comple- tion of a course of instruction, or meals, lodging, or transporta- tion. The term 'educational assistance' also does not include any payment for, or the provision of any benefits with respect to, any course or other education involving sports, games, or hobbies. "(2) EMPLOYEE.—The term 'employee' includes, for any year, an individual who is an employee within the meaning of section 401(c)(l)(relating to self-employed individuals). "(3) EMPLOYER.—An individual who owns the entire interest in an unincorporated trade or business shall be treated as his own
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2813 employer. A partnership shall be treated as the employer of each partner who is an employee within the meaning of paragraph (2). "(4) ATTRIBUTION RULES.— "(A) OWNERSHIP OF STOCK.—Ownership of stock in a corpo- ration shall be determined in accordance with the rules provided under subsections (d) and (e) of section 1563 (with- 26 USC 1.563. out regard to section 1563(e)(3)(C)). "(B) INTEREST IN UNINCORPORATED TRADE OR BUSINESS.— The interest of an employee in a trade or business which is not incorporated shall be determined in accordance with regulations prescribed by the Secretary, which shall be based on principles similar to the principles which apply in the case of subparagraph (A). "(5) CERTAIN TESTS NOT APPLICABLE.—An educational assist- ance program shall not be held or considered to fail to meet any requirements of subsection (b) merely because— "(A) of utilization rates for the different types of educa- tional assistance made available under the program; or "(B) successful completion, or attaining a particular course grade, is required for or considered in determining reimbursement under the program. "(6) RELATIONSHIP TO CURRENT LAW.—This section shall not be construed to affect the deduction or inclusion in income of ' amounts (not within the exclusion under this section) which are paid or incurred, or received as reimbursement, for educational expenses under section 117,162 or 212. 26 USC 117, "(7) DISALLOWANCE OF EXCLUDED AMOUNTS AS CREDIT OR DEDUC- 162, 212. TION.—No deduction or credit shall be allowed under any other section of this chapter for any amount excluded from income by reason of this section. "(d) TERMINATION.—This section shall not apply to taxable years beginning after December 31,1983." (b) TREATMENT OF EMPLOYER EDUCATIONAL ASSISTANCE BENEFITS FOR PURPOSES OF WITHHOLDING, UNEMPLOYMENT TAXES, AND SOCIAL SKCTTRITY TAXFS (1) Section 3401(a) (relating to the definition of wages for 26 USC 3401. purposes of collection of income tax at the source) is amended— (A) by striking out "or" at the end of paragraph (16); (B) by striking out the period at the end of paragraph (17); and (C) by adding at the end thereof the following new para- graph: "(18) for any payment made, or benefit furnished, to or for the benefit of an employee if at the time of such payment or such furnishing it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under section 124.". 26 USC 124. (2) Section 3306(b) (relating to the definition of wages for 26 USC 3306. purposes of the Federal Unemployment Tax Act) is amended— (A) by striking out "or" at the end of paragraph (11); (B) by striking out the period at the end of paragraph (12) and inserting in lieu thereof "; or"; and (C) by adding at the end thereof the following new para- graph: "(13) any payment made, or benefit furnished, to or for the benefit of an employee if at the time of such payment or such furnishing it is reasonable to believe that the employee will be
92 STAT. 2814 PUBLIC LAW 95-600—NOV. 6, 1978 able to exclude such payment or benefit from income under Ante, p. 2811. section 127.". 26 use 3121. (3) Section 3121(a) (relating to the definition of wages for purposes of the Federal Insurance Contributions Act) is amended— (A) by striking out "or" at the end of paragraph (16); (B) by striking out the period at the end of subparagraph (17) and inserting in lieu thereof "; or"; and (C) by adding at the end thereof the following new para- graph: "(18) any payment made, or benefit furnished, to or for the benefit of an employee if at the time of such payment or such furnishing it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under section 127.". 42 use 409. (4) Section 209 of the Social Security Act is amended— (A) by striking out "or" at the end of subsection (o); (B) by striking out the period at the end of subsection (p) and inserting in lieu thereof "; or"; and (C) by inserting after subsection (p) and before the sen- tence beginning with "For purposes of this title, in the case of domestic service" the following new subsection: "(q) Any payment made, or benefit furnished, to or for the benefit of an employee if at the time of such payment or such furnishing it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under section 127 of the Internal Revenue Code of 1954." (c) CLERICAL AMENDMENT.—The table of sections for such part is amended by striking out the item relating to section 124 and inserting in lieu thereof the following: "Sec. 124. Educational assistance programs. "Sec. 125. Cross references to other Acts.". 26 use 127 (d) EFFECTIVE DATE.—The amendments made by this section shall note. apply with respect to taxable years beginning after December 31, 1978. TITLE II—TAX SHELTER PROVISIONS Subtitle A—Provisions Related To At Risk Rules SEC. 201. EXTENSION OF SECTION 465 AT RISK RULES TO ALL ACTIVI- TIES OTHER THAN REAL ESTATE. 26 use 465. (a) EXTENSION.—Subsection (c) of section 465 (relating to activities to which section applies) is amended by adding at the end thereof the following new paragraph: "(3) EXTENSION TO OTHER ACTIVITIES.— "(A) IN GENERAL.—In the case of taxable years beginning after December 31, 1978, this section also applies to each activity— "(i) engaged in by the taxpayer in carrying on a trade or business or for the production of income, and "(ii) which is not described in paragraph (1). "(B) AGGREGATION OF ACTIVITIES WHERE TAXPAYER ACTIVELY PARTICIPATES IN MANAGEMENT OF TRADE OR BUSI-
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2815 NESS.—Except as provided in subparagraph (C), for purposes of this section, activities described in subparagraph (A) which constitute a trade or business shall be treated as one activity if— "(i) the taxpayer actively participates in the manage- ment of such trade or business, or "(ii) such trade or business is carried on by a partner- ship or electing small business corporation (as defined in section 1371(b)) and 65 percent or more of the losses for 26 USC 1371. the taxable year is allocable to persons who actively participate in the management of the trade or business. "(C) AGGREGATION OR SEPARATION OF ACTIVITIES UNDER- REGULATiONS.—The Secretary shall prescribe regulations Regulations, under which activities described in subparagraph (A) shall be aggregated or treated as separate activities. "(D) EXCLUSIONS.— "(i) REAL PROPERTY.—In the case of activities described in subparagraph (A), the holding of real prop- erty (other than mineral property) shall be treated as a separate activity, and subsection (a) shall not apply to losses from such activity. For purposes of the preceding sentence, personal property and services which are incidental to making real property available as living accommodations shall be treated as part of the activity of holding such real property. "(ii) EQUIPMENT LEASING BY CLOSELY-HELD CORPORA- TIONS.— "(I) In the case of a corporation described in subsection (a)(1)(C) actively engaged in leasing equipment which is section 1245 property, the activ- 26 USC 1245. ity of leasing such equipment shall be treated, for purposes of subsection (a), as a separate activity and subsection (a) shall not apply to losses from such activity. "(II) A corporation described in subsection (a)(1) (C) shall not be considered to be actively engaged in leasing such equipment unless 50 percent or more of the gross receipts of the corporation for the taxable year are attributable, under regulations prescribed by the Secretary, to leasing and selling such equip- ment. "(Ill) For purposes of this paragraph, the leasing of master sound recordings, and other similar con- tractual arrangements with respect to tangible or intangible assets associated with literary, artistic, or musical properties shall not be treated as leasing equipment which is section 1245 property. "(IV) In the case of a controlled group of corpora- tions (within the meaning of section 1563(a)), this 26 USC 1563. paragraph shall be applied by treating the con- trolled group as a single corporation. "(E) APPLICATION OF SUBSECTION 0D)(3).—In the case of an activity described in subparagraph (A), subsection (b)(3) shall apply only to the extent provided in regulations prescribed by the Secretary." (b) REPEAL OF SECTION 704(d) AT RISK RULES.—
92 STAT. 2816 PUBLIC LAW 95-600—NOV. 6, 1978 26 use 704. (1) IN GENERAL.—Subsection (d) of section 704 is amended by striking out the last 2 sentences. 26 use 704 (2) TRANSITIONAL RULE.—In the case of a loss which was not ""^^- allowed for any taxable year by reason of the last 2 sentences of section 704(d) of the Internal Revenue Code of 1954 (as in effect before the date of the enactment of this Act), such loss shall be Infra. treated as a deduction (subject to section 465(a) of such Code) for the first taxable year beginning after December 31,1978. Section 465(a) of such Code (as amended by this section) shall not apply with respect to partnership liabilities to which the last 2 sen- tences of section 704(d) of such Code (as in effect on the day before the date of enactment of this Act) did not apply because of the 26 use 709 provisions of section 213(f)(2) of the Tax Reform Act of 1976. "<'*^- (c) CLERICAL AMENDMENTS.— (1) The heading of section 465 is amended to read as follows: 26 use 465. "SEC. 465. DEDUCTIONS LIMITED TO AMOUNT AT RISK." (2) The table of sections for subpart C of part II of subchapter E 26 use 461 et of chapter 1 is amended by striking out "in case of certain seq- activities" in the item relating to section 465. SEC. 202. EXTENSION OF AT RISK PROVISIONS TO CLOSELY HELD COR- PORATIONS. 26 use 465. Subsection (a) of section 465 (relating to deductions limited to amount at risk) is amended to read as follows: "(a) LIMITATION TO AMOUNT AT RISK.— "(1) IN GENERAL.—In the case of— "(A) an individual, "(B) an electing small business corporation (as defined in 26 use 1371. section 1371(b)), and "(C) a corporation with respect to which the stock owner- 26 use 542. ship requirement of paragraph (2) of section 542(a) (deter- mined by reference to the rules contained in section 318 26 use 544. rather than under section 544) is met, engaged in an activity to which this section applies, any loss from such activity for the taxable year shall be allowed only to the extent of the aggregate amount with respect to which the taxpayer is at risk (within the meaning of subsection Qa)) for such activity at the close of the taxable year. "(2) DEDUCTION IN SUCCEEDING YEAR.—Any loss from an activ- ity to which this section applies not allowed under this section for the taxable year shall be treated as a deduction allocable to such activity in the first succeeding taxable year." SEC. 203. RECAPTURE OF LOSSES WHERE AMOUNT AT RISK IS LESS THAN ZERO. 26 use 465. Section 465 (relating to deductions limited to amount at risk) is amended by adding at the end thereof the following new subsection: "(e) RECAPTURE OF LOSSES WHERE AMOUNT AT RISK Is LESS THAN ZERO.— "(1) I N GENERAL.— If zero exceeds the amount for which the taxpayer is at risk in any activity at the close of any taxable year— "(A) the taxpayer shall include in his gross income for such taxable year (as income from such activity) an amount equal to such excess, and
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2817 "(B) an amount equal to the amount so included in gross income shall be treated as a deduction allocable to such activity for the first succeeding taxable year. "(2) LIMITATION.—The excess referred to in paragraph (1) shall not exceed— "(A) the aggregate amount of the reductions required by subsection (b)(5) with respect to the activity for all prior taxable years beginning after December 31,1978, reduced by "(B) the amounts previously included in gross income with respect to such activity under this subsection." SEC. 204. EFFECTIVE DATES. 26 USC 465 (a) I N GENERAL.—The amendments made by this subtitle shall apply to taxable years beginning after December 31,1978. (b) TRANSITIONAL RULES.— (1) RECAPTURE PROVISIONS.—If the amount for which the tax- payer is at risk in any activity as of the close of the taxpayer's last taxable year beginning before January 1, 1979, is less than zero, section 465(e)(1) of the Internal Revenue Code of 1954 (as ^"-te, p- 2816. added by section 203 of this Act) shall be applied with respect to such activity of the taxpayer by substituting such negative amount for zero. (2) SPECIAL TRANSITIONAL RULES FOR LEASING ACTIVITIES.— (A) RULE FOR LEASES.—In the case of any activity described in section 465(c)(1)(C) of such Code in which a corporation described in section 465(aXl)(C) of such Code is engaged, the amendments made by this section shall not apply with respect to— (i) leases entered into before November 1, 1978, and (ii) leases where the property was ordered by the lessor or lessee before November 1,1978. (B) HOLDING OF INTERESTS FOR PURPOSES OF SUBPARAGRAPH (A).—Subparagraph (A) shall apply only to taxpayers who held their interests in the property on October 31, 1978. Subtitle B—Partnership Provisions SEC. 211. PENALTY FOR FAILURE TO FILE PARTNERSHIP RETURN. (a) GENERAL RULE.—Subchapter B of chapter 68 (relating to assess- able penalties) is amended by adding at the end thereof the following new section: "SEC. 6698. FAILURE TO FILE PARTNERSHIP RETURN. 26 USC 6698. "(a) GENERAL RULE.—In addition to the penalty imposed by section 7203 (relating to willful failure to file return, supply information, or 26 USC 7203. pay tax), if any partnership required to file a return under section 6031 for any taxable year— 26 USC 6031. "(1) fails to file such return at the time prescribed therefor (determined with regard to any extension of time for filing), or "(2) files a return which fails to show the information required under section 6031, such partnership shall be liable for a penalty determined under subsection (b) for each month (or fraction thereof) during which such failure continues (but not to exceed 5 months), unless it is shown that such failure is due to reasonable cause.
92 STAT. 2818 PUBLIC LAW 95-600—NOV. 6, 1978 "(b) AMOUNT P E R MONTH.—For purposes of subsection (a), the amount determined under this subsection for any month is the product of— "(1) $50, multiplied by "(2) the number of persons who were partners in the partner- ship during any part of the taxable year "(c) ASSESSMENT OF PENALTY.—The penalty imposed by subsection (a) shall be assessed against the partnership. "(d) DEFICIENCY PROCEDURES NOT T O APPLY.—Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a)." (b) CLERICAL AMENDMENT.—The table of sections for subchapter B of chapter 68 is amended by adding at the end thereof the following new item: "Sec. 6698. Failure to file partnership return." 26 use 6698 (c) EFFECTIVE DATE.—The amendments made by this section shall "ote. apply with respect to returns for taxable years beginning after December 31,1978. SEC. 212. EXTENSION OF STATUTE OF LIMITATIONS IN THE CASE OF PARTNERSHIP ITEMS. 26 use 6501. (a) ASSESSMENT OF DEFICIENCIES.—Section 6501 (relating to limita- tions on assessment and collection) is amended by adding at the end thereof the following new subsection: "(q) SPECIAL RULES FOR PARTNERSHIP ITEMS OF FEDERALLY REGIS- TERED PARTNERSHIPS.— "(1) IN GENERAL.—In the case of any tax imposed by subtitle A with respect to any person, the period for assessing a deficiency attributable to any partnership item of a federally registered partnership shall not expire before the later of— "(A) the date which is 4 years after the date on which the partnership return of the federally registered partnership for the partnership taxable year in which the item arose was filed (or, later, if the date prescribed for filing the return), or "(B) if the name or address of such person does not appear on the partnership return, the date which is 1 year after the date on which such information is furnished to the Secretary in such manner and at such place as he may prescribe by regulations. "(2) PARTNERSHIP ITEM DEFINED.—For purposes of this subsec- tion, the term 'partnership item' means— "(A) any item required to be taken into account for the partnership taxable year under any provision of subchapter K of chapter 1 to the extent that regulations prescribed by the Secretary provide that for purposes of this subtitle such item is more appropriately determined at the partnership level than at the partner level, and "(B) any other item to the extent affected by an item described in subparagraph (A). "(3) EXTENSION BY AGREEMENT.—The extensions referred to in subsection (c)(4), insofar as they relate to partnership items, may, with respect to any person, be consented to— "(A) except to the extent the Secretary is otherwise noti- fied by the partnership, by a general partner of the partner- ship, or
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2819 "(B) by any person authorized to do so by the partnership in writing. "(4) FEDERALLY REGISTERED PARTNERSHIP.—For purposes of this subsection, the term 'federally registered partnership' means, with respect to any partnership taxable year, any partnership— "(A) interests in which have been offered for sale at any time during such taxable year or a prior taxable year in any offering required to be registered with the Securities and Exchange Commission, or "(B) which, at any time during such taxable year or a prior taxable year, was subject to the annual reporting require- ments of the Securities and Exchange Commission which relate to the protection of investors in the partnership." (b) CREDITS AND REFUNDS.— (1) IN GENERAL.—Section 6511 (relating to limitations on credit 26 USC 6511. or refund) is amended by redesignating subsection (g) as subsec- tion (h) and by inserting after subsection (f) the following new subsection: "(g) SPECIAL RULE FOR PARTNERSHIP ITEMS OF FEDERALLY REGIS- TERED PARTNERSHIPS.— "(1) IN GENERAL.—In the case of any tax imposed by subtitle A with respect to any person, the period for filing a claim for credit or refund of any overpayment attributable to any partnership item of a federally registered partnership shall not expire before the later of— "(A) the date which is 4 years after the date prescribed by law (including extensions thereof) for filing the partnership return for the partnership taxable year in which the item arose, or "(B) if an agreement under the provisions of section 6501(c)(4) extending the period for the assessment of any deficiency attributable to such partnership item is made before the date specified in subparagraph (A), the date 6 months after the expiration of such extension. In any case to which the preceding sentence applies, the amount of the credit or refund may exceed the portion of the tax paid within the period provided in subsection (b)(2) or (c), whichever is applicable. "(2) DEFINITIONS.—For purposes of this subsection, the terms 'partnership item' and 'federally registered partnership' have the same meanings as such terms have when used in section 6501(q)." (2) TECHNICAL AMENDMENT.—Paragraph (2) of section 6512(b) 26 USC 6512. (relating to overpayment determined by Tax Court) is amended by striking out "(c), or (d)" each place it appears and inserting in lieu thereof "(c), (d), or (g)". (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 6501 apply to partnership items arising in partnership taxable years "o*^- beginning after December 31,1978.
92 STAT. 2820 PUBLIC LAW 95-600—NOV. 6, 1978 TITLE III—PROVISIONS PRIMARILY AFFECTING BUSINESS INCOME TAX Subtitle A—Corporate Rate Reductions SEC. 301. CORPORATE RATE REDUCTIONS. 26 use 11. (a) IN GENERAL.—Section 11 (relating to the tax imposed on corporations) is amended to read as follows: "SEC. 11. TAX IMPOSED. "(a) CORPORATIONS IN GENERAL.—A tax is hereby imposed for each taxable year on the taxable income of every corporation. "(b) AMOUNT OF TAX.—The amount of the tax imposed by subsec- tion (a) shall be the sum of— "(1) 17 percent of so much of the taxable income as does not exceed $25,000; "(2) 20 percent of so much of the taxable income as exceeds $25,000 but does not exceed $50,000; "(3) 30 percent of so much of the taxable income as exceeds $50,000 but does not exceed $75,000; "(4) 40 percent of so much of the taxable income as exceeds $75,000 but does not exceed $100,000; plus "(5) 46 percent of so much of the taxable income as exceeds $100,000. "(c) EXCEPTIONS.—Subsection (a) shall not apply to a corporation subject to a tax imposed by— 26 use 594. "(1) section 594 (relating to mutual savings banks conducting life insurance business), 26 use 801. "(2) subchapter L (sec. 801 and following, relating to insurance companies), or 26 use 851. "(3) subchapter M (sec. 851 and following, relating to regulated investment companies and real estate investment trusts), "(d) FOREIGN CORPORATIONS.—In the case of a foreign corporation, the tax imposed by subsection (a) shall apply only as provided by 26 use 882. section 882." (b) CONFORMING AMENDMENTS.— (1) CROSS REFERENCES RELATING TO CORPORATIONS.—Paragraph 26 use 12. (7) of section 12 (relating to cross references relating to tax on corporations) is amended to read as follows: "(7) For limitation on benefits of graduated rate schedule provided in section 11(b), see section 1551." 26 use 57. (2) MINIMUM TAX.—Subparagraph (B) of section 57(a)(9) (relat- ing to capital gains preference for corporations) is amended by striking out "the sum of the normal tax rate and the surtax rate under section 11" each place it appears and inserting in lieu thereof "the highest rate of tax specified in section 11(b)". (3) DIVIDENDS RECEIVED ON CERTAIN PREFERRED STOCK.—Sub- 26 use 244. paragraph (B) of section 244(a)(2) (relating to dividends received on certain preferred stock) is amended by striking out "the sum of the normal tax rate and the surtax rate for the taxable year prescribed by section 11" and inserting in lieu thereof "the highest rate of tax specified in section 11(b)". (4) DIVIDENDS PAID ON CERTAIN PREFERRED STOCK OF PUBLIC 26 use 247. UTILITIES.—Subparagraph (B) of section 247(a)(2) (relating to dividends paid on certain preferred stock of public utilities) is
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2821 amended by striking out "the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11" and inserting in lieu thereof "the highest rate of tax specified in section 11(b)". (5) TAX ON UNRELATED BUSINESS INCOME OF CHARITABLE, ETC., ORGANIZATIONS.— (A) IMPOSITION OF TAX.—Paragraph (1) of section 511(a) 26 USC 511. (relating to charitable, etc., organizations taxable at corpora- tion rates) is amended by striking out "a normal tax and a surtax" and inserting in lieu thereof "a tax". (B) ORGANIZATIONS SUBJECT TO TAX.—Paragraph (2) of section 511(a) is amended by striking out "taxes" each place it appears and inserting in lieu thereof "tax". (6) POLITICAL ORGANIZATIONS.—Paragraph (1) of section 527(b) 26 USC 527. (relating to tax imposed) is amended to read as follows: "(1) I N GENERAL.—A tax is hereby imposed for each taxable year on the political organization taxable income of every politi- cal organization. Such tax shall be computed by multiplying the political organization taxable income by the highest rate of tax specified in section 11(b)." ^^te, p. 2820. (7) HOMEOWNERS ASSOCIATIONS.—Paragraph (1) of section 528(b) (relating to tax imposed) is amended to read as follows: 26 USC 528. "(1) I N GENERAL.—A tax is hereby imposed for each taxable year on the homeowners association taxable income of every homeowners association. Such tax shall be computed by multi- plying the homeowners association taxable income by the high- est rate of tax specified in section 11(b)." (8) LIFE INSURANCE COMPANIES.—Paragraph (1) of section 802(a) 26 USC 802. (relating to tax imposed) is amended by striking out "a normal tax and surtax" and inserting in lieu thereof "a tax". (9) MUTUAL INSURANCE COMPANIES.— (A) IN GENERAL.—Subsection (a) of section 821 (relating to 26 USC 821. tax on mutual insurance companies to which part II applies) is amended to read as follows: "(a) IMPOSITION OF TAX.— "(1) I N GENERAL.—A tax is hereby imposed for each taxable year on the mutual insurance company taxable income of every mutual insurance company (other than a life insurance company and other than a fire, flood, or marine insurance company subject to the tax imposed by section 831). Such tax shall be 26 USC 831. computed by multiplying the mutual insurance company taxable income by the rates provided in section 11(b). "(2) CAP ON TAX WHERE INCOME IS LESS THAN $12,000.—The tax imposed by paragraph (1) shall not exceed 34 percent of the amount by which the mutual insurance company taxable income exceeds $6,000." (B) SMALL COMPANIES.—Paragraph (1) of section 821(c) 26 USC 821. (relating to alternative tax for certain small companies) is amended to read as follows: "(1) IMPOSITION OF TAX.— "(A) I N GENERAL.—There is hereby imposed for each taxable year on the income of every mutual insurance company to which this subsection applies a tax (which shall be in lieu of the tax imposed by subsection (a)). Such tax shall be computed by multiplying the taxable investment income by the rates provided in section 11(b).
92 STAT. 2822 PUBLIC LAW 95-600—NOV. 6, 1978 "(B) CAP WHERE INCOME IS LESS THAN $6,000.—The tax imposed by subparagraph (A) shall not exceed 34 percent of the amount by which the taxable investment income exceeds $3,000." 26 use 826. (10) ELECTION BY MUTUAL INSURANCE COMPANY WHICH IS A RECIPROCAL.—Paragraph (1) of section 826(c) (relating to excep- tion) is amended to read as follows: Ante, p. 2820. "(1) is subject to the tax imposed by section 11;". (11) REGULATED INVESTMENT COMPANIES.—Paragraph (1) of 26 use 852. section 852(b) (relating to method of taxation of companies and shareholders) is amended to read as follows: "(1) IMPOSITION OF TAX ON REGULATED INVESTMENT COMPA- NIES.—There is hereby imposed for each taxable year upon the investment company taxable income of every regulated invest- ment company a tax computed as provided in section 11, as though the investment company taxable income were the tax- able income referred to in section 11." (12) REAL ESTATE INVESTMENT TRUSTS.—Paragraph (1) of section 26 use 857. 857(b) (relating to imposition of normal tax and surtax on real estate investment trusts) is amended to read as follows: "(1) IMPOSITION OF TAX ON REAL ESTATE INVESTMENT TRUSTS.— There is hereby imposed for each taxable year on the real estate investment trust taxable income of every real estate investment trust a tax computed as provided in section 11, as though the real estate investment trust taxable income were the taxable income referred to in section 11." (13) TAX ON INCOME OF FOREIGN CORPORATIONS CONNECTED WITH UNITED STATES BUSINESS.—The heading of subsection (a) of section 26 use 882. 882 (relating to tax on income of foreign corporations connected with United States business) and the heading of paragraph (1) of such subsection are amended to read as follows: "(a) IMPOSITION OF TAX.— "(1) I N GENERAL.—". 26 use 907. (14) FOREIGN TAX CREDIT.—Paragraph (2) of section 907(a) (relating to reduction in amount allowed as foreign tax under 26 use 901. section 901) is amended to read as follows: "(2) the percentage which is equal to the highest rate of tax specified in section 11(b)." (15) SPECIAL DEDUCTION FOR WESTERN HEMISPHERE TRADE CORPO- 26 use 922. RATION.—Subparagraph (B) of section 922(a)(2) (relating to gen- eral rule) is amended by striking out "the sum of the normal tax rate and the surtax rate for the taxable year prescribed by section 11" and inserting in lieu thereof "the highest rate of tax specified in section 11(b)." (16) ELECTION BY INDIVIDUALS TO BE SUBJECT TO TAX AT CORPO- 26 use 962. RATE RATES.—Subsection (c) of section 962 (relating to surtax exemption with respect to individuals subject to tax at corporate rates) is amended to read as follows: "(c) PRO RATION OF EACH SECTION 11 BRACKET AMOUNT.—For purposes of applying subsection (a)(1), the amount in each taxable income bracket in the tax table in section 11(b) shall not exceed an amount which bears the same ratio to such bracket amount as the amount included in the gross income of the United States share- 26 use 951. holder under section 951(a) for the taxable year bears to such shareholder's pro rata share of the earnings and profits for the taxable year of all controlled foreign corporations with respect to
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2823 which such shareholder includes any amount in gross income under section 951(a)." 26 use 951. (17) TREATMENT OF RECOVERIES OF FOREIGN EXPROPRIATION LOSSES.—Paragraph (4) of section 1351(d) (relating to adjustment 26 USC 1351. for prior tax benefits) is amended to read as follows: "(4) SUBSTITUTION OF CURRENT TAX RATE.—For purposes of this subsection, the rates of tax specified in section 11(b) for the ^nte, p. 2820. taxable year of the recovery shall be treated as having been in effect for all prior taxable years." (18) AMENDMENTS OF SECTION 1551.— 26 use 1551. (A) Subsection (a) of section 1551 (relating to disallowance of surtax exemption and accumulated earnings credit) is amended— (i) by striking out "disallow the surtax exemption (as defined in section 11(d))" and inserting in lieu thereof "disallow the benefits of the rates contained in section 11(b) which are lower than the highest rate specified in such section", and (ii) by striking out "such exemption or" and inserting in lieu thereof' 'such benefits or". (B) The section heading of section 1551 is amended to read as follows: "SEC. 1551. DISALLOWANCE OF THE BENEFITS OF THE GRADUATED COR- 26 USC 1551. PORATE RATES AND ACCUMULATED EARNINGS CREDIT." (C) The table of sections for part I of subchapter B of chapter 6 is amended by striking out the item relating to section 1551 and inserting in lieu thereof the following new item: "Sec. 1551. Disallowance of the benefits of the graduated corporate rates and accumulated earnings credit." (19) LIMITATIONS ON CERTAIN MULTIPLE TAX BENEFITS IN THE CASE OF C E R T A I N CONTROLLED CORPORATIONS.— (A) IN GENERAL.—Subsection (a) of section 1561 (relating to 26 use 1561. limitations on certain multiple tax benefits in the case of certain controlled corporations) is amended— (i) by striking out paragraph (1) and inserting in lieu thereof the following: "(1) amounts in each taxable income bracket in the tax table in section 11(b) which do not aggregate more than the maximum amount in such bracket to which a corporation which is not a component member of a controlled group is entitled,", (ii) by striking out "amount" each place it appears in the second sentence and inserting in lieu thereof "amounts", and (iii) by striking out the last sentence. (B) CERTAIN SHORT TAXABLE YEARS.—Paragraph (1) of sec- tion 1561(b) (relating to certain short taxable years) is amended to read as follows: "(1) the amount in each taxable income bracket in the tax table in section 11(b),". (20) REPEAL OF CERTAIN OBSOLETE PROVISIONS.— (A) Subsection (c) of section 6154 (defining estimated tax) is 26 use 6154. amended to read as follows: "(c) ESTIMATED TAX DEFINED.—For purposes of this title, in the case of a corporation the term 'estimated tax' means the excess of—
92 STAT. 2824 PUBLIC LAW 95-600—NOV. 6, 1978 "(1) the amount which the corporation estimates as the amount of the income tax imposed by section 11 or 1201(a), or 26 use 11, subchapter L of chapter 1, whichever is applicable, over 9^^n<;r "^^^ ^^® amount which the corporation estimates as the sum of 26 use 801. ^j^g credits against tax provided by part IV of subchapter A of 26 use 31. chapter 1." 26 use 6655. (B) Subsection (e) of section 6655 (defining tax) is amended to read as follows: "(e) DEFINITION OF TAX.—For purposes of subsections (b) and (d), the term 'tax' means the excess of— "(1) the tax imposed by section 11 or 1201(a), or subchapter L of 26 use 11, chapter 1, whichever is applicable, over }3^}-^ ^^, "(2) the credits against tax provided by part IV of subchapter A |6USe80le^ of chapter 1." 26 use 31 et seq. (c) EFFECTIVE DATE.—The amendments made by this section shall 26 use 11 note, apply to taxable years beginning after December 31,1978. Subtitle B—Credits SEC. 311. 10-PERCENT INVESTMENT TAX CREDIT AND $100,000 LIMITA- TION ON USED PROPERTY MADE PERMANENT. (a) 10-PERCENT INVESTMENT CREDIT.—Subparagraph (B) of section 26 use 46. 46(a)(2) (defining regular percentage) is amended to read as follows: "(B) REGULAR PERCENTAGE.—For purposes of this para- graph, the regular percentage is 10 percent." (b) $100,000 LIMITATION ON USED PROPERTY.—Paragraph (2) of 26 use 48 note, section 301(c) of the Tax Reduction Act of 1975 (relating to effective date for increase of dollar limitation on used property) is amended by striking out", and before January 1,1981". (c) TECHNICAL AMENDMENTS.— 26 use 46. (1) Subparagraph (A) of section 46(c)(3) (relating to public utility property) is amended by striking out "For the period beginning on January 1,1981" and inserting in lieu thereof "To the extent that the credit allowed by section 38 with respect to any public utility property is determined at the rate of 7 percent". 26 use 46. (2) The first sentence of section 46(f)(8) (relating to prohibition of immediate flow through) is amended by striking out "and the 92 Stat. 3174. Energy Tax Act of 1978" and inserting in lieu thereof "the 26 use 1 note. Energy Tax Act of 1978, and the Revenue Act of 1978". Ante, p. 2763. ^ SEC. 312. INCREASE IN LIMITATION ON INVESTMENT CREDIT TO 90 PER- CENT OF TAX LIABILITY (a) INCREASE IN GENERAL LIMITATION.—Paragraph (3) of section 26 use 46. 46(a) (relating to amount of credit) is amended to read as follows: "(3) LIMITATION BASED ON AMOUNT OF TAX.—Notwithstanding paragraph (1), the credit allowed by section 38 for the taxable year shall not exceed— "(A) so much of the liability for tax for the taxable year as does not exceed $25,000, plus "(B) the following percentage of so much of the liability for tax for the taxable year as exceeds $25,000: "If the taxable year ends in: The percentage is: • 1979 60 1980 70 1981 80 1982 or thereafter 90."
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2825 (b) SPECIAL RULES FOR CERTAIN UTIUTIES, RAILROADS, AND AIR- UNES.— (1) UTILITIES.—Paragraph (7) of section 46(a) (relating to alter- 26 use 46. native limitation in the case of certain utilities) is amended to read as follows: "(7) ALTERNATIVE LIMITATION IN THE CASE OF CERTAIN UTILI- TIES.— "(A) IN GENERAL.—If, for the taxable year ending in 1979— "(i) the amount of the qualified investment of the taxpayer which is attributable to public utility property is 25 percent or more of his aggregate qualified invest- ment, and "(ii) the application of this paragraph results in a percentage higher than 60 percent, then subparagraph (B) of paragraph (3) of this subsection shall be applied by substituting for '60 percent' the taxpay- er's applicable percentage for such year. "(B) APPLICABLE PERCENTAGE.—The applicable percentage for any taxpayer for any taxable year ending in 1979 is— "(i) 50 percent, plus "(ii) that portion of 20 percent which the taxpayer's amount of qualified investment which is public utility property bears to his aggregate qualified investment. If the proportion referred to in clause (ii) is 75 percent or more, the applicable percentage of the taxpayer for the year shall be 70 percent. "(C) PUBLIC UTILITY PROPERTY DEFINED.—For purposes of this paragraph, the term 'public utility property' has the meaning given to such term by the first sentence of subsec- tion (c)(3)(B)." (2) ALTERNATIVE LIMITATION IN THE CASE OF CERTAIN RAILROADS AND AIRLINES.—Subsection (a) of section 46 is amended by strik- ing out paragraphs (8) and (9) and by inserting in lieu thereof the following new paragraph: "(8) ALTERNATIVE LIMITATION IN THE CASE OF CERTAIN RAIL- ROADS AND AIRLINES.— "(A) IN GENERAL.—If^ for a taxable year ending in 1979 or 1980— "(i) the amount of the qualified investment of the taxpayer which is attributable to railroad property or to airline property, as the case may be, is 25 percent or more of his aggregate qualified investment, and "(ii) the application of this paragraph results in a percentage higher than 60 percent (70 percent in the case of a taxable year ending in 1980), then subparagraph (B) of paragraph (3) of this subsection shall be applied by substituting for'60 percent'('70 percent' in the case of a taxable year ending in 1980) the taxpayer's applicable percentage for such year. "(B) APPLICABLE PERCENTAGE.—The applicable percentage of any taxpayer for any taxable year under this paragraph is— "(i) 50 percent, plus "(ii) that portion of the tentative percentage for the taxable year which the taxpayer's amount of qualified investment which is railroad property or airline prop- 39-194 O—80—pt. 3 13 : QL3
92 STAT. 2826 . PUBLIC LAW 95-600—NOV. 6, 1978 ^* erty (as the case may be) bears to his aggregate qualified investment. If the proportion referred to in clause (ii) is 75 percent or more, the applicable percentage of the taxpayer for the taxable year shall be 90 percent (80 percent in the case of a taxable year ending in 1980). "(C) TENTATIVE PERCENTAGE.—For purposes of subpara- graph (B), the tentative percentage shall be determined under the following table: "If the taxable year ends in: The tentative percentage is: 1979 40 1980 30 "(D) RAILROAD PROPERTY DEFINED.—For purposes of this paragraph, the term 'railroad property' means section 38 property used by the taxpayer directly in connection with the trade or business carried on by the taxpayer of operating a railroad (including a railroad switching or terminal company). "(E) AIRLINE PROPERTY DEFINED.—For purposes of this paragraph, the term 'airline property' means section 38 property used by the taxpayer directly in connection with the trade or business carried on by the taxpayer of the furnishing or sale of transportation as a common carrier by air subject to the jurisdiction of the Civil Aeronautics Board or the Federal Aviation Administration." (c) REPEAL OF CERTAIN OBSOLETE PROVISIONS.— (1) Subsections (h), (i), and (j) of section 48 and sections 49 and 26 u s e 48, 49, 50 are hereby repealed. 50. (2) Paragraphs (1) and (2) of section 46(f) and subparagraph (B) 26 u s e 46. of section 48(a)(7) are each amended by striking out "described in 26 u s e 48. section 50". 26 u s e 50. (3) Subparagraph (A) of section 48(a)(7) is amended by striking 26 u s e 48. 26 u s e 167 out "(other than pre-termination property)". (4) Subsection (i) of section 167 is hereby repealed. (5) The table of sections for subpart B of part IV of subchapter 26 u s e 46. A of chapter 1 is amended by striking out the items relating to 26 u s e 49, 50. sections 49 and 50. 26 u s e 46 note (d) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years ending after December 31,1978. SEC. 313. INVESTMENT CREDIT FOR POLLUTION CONTROL FACILITIES. 26 u s e 46. (a) IN GENERAL.—Paragraph (5) of section 46(c) (relating to applica- ble percentage in the case of certain pollution control facilities) is amended to read as follows: "(5) APPLICABLE PERCENTAGE IN THE CASE OF CERTAIN POLLU- TION CONTROL FACILITIES.— (A) IN GENERAL.—Notwithstanding paragraph (2), in the case of property— "(i) with respect to which an election under section 26 use 169. 169 applies, and "(ii) the useful life of which (determined without regard to section 169) is not less than 5 years. 100 percent shall be the applicable percentage for purposes of applying paragraph (1) with respect to so much of the adjusted basis of the property as (after the application of section 169(f)) constitutes the amortizable basis for purposes of section 169.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2827 ' "(B) SPECIAL RULE WHERE PROPERTY IS FINANCED BY INDUS- TRIAL DEVELOPMENT BONDS.—To the extent that any property is financed by the proceeds of an industrial development bond (within the meaning of section 103(b)(2)) the interest on 26 use 103. which is exempt from tax under section 103, subparagraph (A) shall be applied by substituting '50 percent' for '100 percent'." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 46 note. apply to— (1) property acquired by the taxpayer after December 31,1978, and (2) property the construction, reconstruction, or erection of which was completed by the taxpayer after December 31, 1978 (but only to the extent of the basis thereof attributable to construction, reconstruction, or erection after such date). SEC. 314. INVESTMENT CREDIT FOR CERTAIN SINGLE PURPOSE AGRI- CULTURAL OR HORTICULTURAL STRUCTURES. (a) GENERAL RULE.—Paragraph (1) of section 48(a) (defining section 26 USC 48. 38 property) is amended by striking out the period at the end of 26 USC 38. subparagraph (C) and inserting in lieu thereof ", or" and by inserting after subparagraph (C) the following new subparagraph: "(D) single purpose agricultural or horticultural struc- tures." (b) DEFINITION OF SINGLE PURPOSE AGRICULTURAL OR HORTICUL- TURAL STRUCTURES.—Section 48 is amended by redesignating subsec- 26 USC 48. tion (p) as subsection (q) and by inserting after subsection (o) the following new subsection: "(p) SINGLE PURPOSE AGRICULTURAL OR HORTICULTURAL STRUCTURE DEFINED.—For purposes of this section— "(1) I N GENERAL.—The term 'single purpose agricultural or horticultural structure' means— "(A) a single purpose livestock structure, and "(B) a single purpose horticultural structure. "(2) SINGLE PURPOSE LIVESTOCK STRUCTURE.—The term 'single purpose livestock structure' means any enclosure or structure specifically designed, constructed, and used— "(A) for housing, raising, and feeding a particular type of livestock and their produce, and "(B) for housing the equipment (including any replace- ments) necessary for the housing, raising, and feeding re- ferred to in subparagraph (A). "(3) SINGLE PURPOSE HORTICULTURAL STRUCTURE.—The term 'single purpose horticultural structure' means— "(A) a greenhouse specifically designed, constructed, and used for the commerical production of plants, and "(B) a structure specifically designed, constructed and used for the commercial production of mushrooms. "(4) STRUCTURES WHICH INCLUDE WORK SPACE.—An enclosure or structure which provides work space shall be treated as a single purpose agricultural or horticultural structure only if such work space is solely for— "(A) the stocking, caring for, or collecting of livestock or plants (as the case may be) or their produce, "(B) the maintenance of the enclosure or structure, and "(C) the maintenance or replacement of the equipment or stock enclosed or housed therein.
92 STAT. 2828 PUBLIC LAW 95-600—NOV. 6, 1978 26 use 47. "(5) SPECIAL RULE FOR APPLYING SECTION 47.—For purposes of section 47, any single purpose agricultural or horticultural structure shall be treated as meeting the requirements of this subsection for any period during which such structure is held for the use under which it qualified under this subsection. "(6) LIVESTOCK.—The term 'livestock' includes poultry." 26 use 48 note. (c) EFFECTIVE DATE.—The amendments made by subsections (a) and db) shEill apply to taxable years ending after August 15,1971. SEC. 315. INVESTMENT CREDIT ALLOWED FOR CERTAIN REHABILITATED BUILDINGS. 26 use 48. (a) IN GENERAL.—Paragraph (1) of section 48(a) (defining section 38 26 use 38. property) is amended by striking out the period at the end of subparagraph (D) and by inserting in lieu thereof "; or" and the following new subparagraph: "(E) in the case of a qualified rehabilitated building, that portion of the basis which is attributable to qualified reha- bilitation expenditures (within the meaning of subsection (g))." (b) QUAUFIED REHABILITATED BUILDINGS DEFINED.—Section 48 is amended by inserting after subsection (f) the following new subsec- tion: "(g) SPECIAL RULES FOR QUALIFIED REHABILITATED BUILDINGS.—For purposes of this subpart— "(1) QUALIFIED REHABILITATED BUILDING DEFINED.— "(A) IN GENERAL.—The term 'qualified rehabilitated build- ing' means any building (and its structural components)— "(i) which has been rehabilitated, "(ii) which was placed in service before the beginning of the rehabilitation, and "(iii) 75 percent or more of the existing external walls of which are retained in place as external walls in the rehabilitation process. "(B) 20 YEARS MUST HAVE ELAPSED SINCE CONSTRUCTION OR PRIOR REHABILITATION.—A building shall not be a qualified rehabilitated building unless there is a period of at least 20 years between— "(i) the date the physical work on this rehabilitation of the building began, and "(ii) the later of— "(I) the date such building was first placed in service, or .,,,,i "(II) the date such building was placed in service in connection with a prior rehabilitation with re- spect to which a credit was allowed by reason of subsection (a)(1)(E). "(C) MAJOR PORTION TREATED AS SEPARATE BUILDING IN CERTAIN CASES.—Where there is a separate rehabilitation of a major portion of a building, such major portion shall be treated as a separate building. "(D) REHABILITATION INCLUDES RECONSTRUCTION.—Reha- bilitation includes reconstruction. "(2)(^i QUALIFIED REHABILITATION EXPENDITURE DEFINED.— (A) IN GENERAL.—The term 'qualified rehabilitation ex- penditure' means any amount properly chargeable to capital account which is incurred after October 31,1978— "(i) for property (or additions or improvements to property) with a useful life of 5 years or more, and
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2829 "(ii) in connection with the rehabilitation of a quali- fied rehabilitated building. "(B) CERTAIN EXPENDITURES NOT INCLUDED.—The term * 'qualified rehabilitation expenditure' does not include— "(i) PROPERTY OTHERWISE SECTION 38 PROPERTY.—Any 26 use 38. expenditure for property which constitutes section 38 property (determined without regard to subsection (a)(1)(E). "(ii) COST OF ACQUISITION.—The cost of acquiring any building or any interest therein. "(iii) ENLARGEMENTS.—Any expenditure attributable to the enlargement of the existing building. "(iv) CERTIFIED HISTORIC STRUCTURES.—Any expendi- ture attributable to the rehabilitation of a certified historic structure (within the meaning of section 191(d)(1)), unless the rehabilitation is a certified reha- 26 USC 191. bilitation (within the meaning of section 191(dX4)). "(3) PROPERTY TREATED AS NEW SECTION 38 PROPERTY.—Prop- erty which is treated as section 38 property by reason of subsec- tion (a)(1)(E) shall be treated as new section 38 property." (c) TECHNICAL AMENDMENT.—Paragraph (8) of section 48(a) (relat- 26 use 48. ing to amortized property) is amended by striking out "or 188" and inserting in lieu thereof "188, or 191". (d) EFFECTIVE DATE.—The amendments made by this section shall 26 use 48 note. apply to taxable years ending after October 31,1978; except that the amendment made by subsection (c) shall only apply with respect to property placed in service after such date. SEC. 316. TAX TREATMENT OF THE INVESTMENT CREDIT IN THE CASE OF COOPERATIVE ORGANIZATIONS. (a) IN GENERAL.—Section 46 (relating to amount of credit) is 26 use 46. amended by adding at the end thereof the following new subsection: "(h) SPECIAL RULES FOR COOPERATIVES.—In the case of a cooperative organization described in section 1381(a)— 26 use 1381. "(1) that portion of the credit allowable to the organization under section 38 which the organization cannot use for the taxable year to which the qualified investment is attributable because of the limitation contained in subsection (a)(3) shall be allocated to the patrons of the organization, "(2) section 47 (relating to certain dispositions, etc., of section 26 use 47. 38 property) shall be applied as if any allocated portion of the credit had been retained by the organization, and "(3) the idles necessary to carry out the purposes of this subsection shall be determined under regulations prescribed by the Secretary." (b) CONFORMING AMENDMENTS.— (1) Paragraph (1) of section 46(e) (relating to limitations in case 26 use 46. ofcertain persons) is amended— (A) by adding "and" at the end of subparagraph (A), (B) by striking out "and" at the end of subparagraph (B), and (C) by striking out subparagraph (C). (2) Paragraph (2) of section 46(e) is amended— (A) by adding "and" at the end of subparagraph (A), (B) by striking out, ", and" at the end of subparagraph (B) and inserting in lieu thereof a period, and (C) by striking out subparagraph (C).
92 STAT. 2830 PUBLIC LAW 95-600—NOV. 6, 1978 26 use 1388. (3) Section 1388 (relating to definitions and special rules for cooperative organizations) is amended by adding at the end thereof the following new subsection, "(j) CROSS REFERENCE.— * "For provisions relating to the apportionment of the investment credit between cooperative organizations and their patrons, see section 46(h)." 26 use 46 note. (c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years ending after October 31,1978. SEC. 317. TRANSFERS TO CONRAIL NOT TREATED AS DISPOSITIONS FOR PURPOSES OF THE INVESTMENT CREDIT. 26 use 47. (a) I N GENERAL.—Subsection (b) of section 47 (relating to certain 26 use 38. disposition, etc., of section 38 property) is amended by striking out "or" at the end of paragraph (1), by striking out the period at the end of paragraph (2) and inserting in lieu thereof **, or", and by inserting after paragraph (2) the following new paragraph: 26 use 374. "(3) a transfer to which subsection (c) of section 374 (relating to exchanges under the final system plan for Ck>nR£dl) applies." 26 use 47 note. (b) EFFECTIVE DATE.—The amendments made by subsection (a) shall apply to taxable years ending after March 31,1976. Subtitle C—Targeted Jobs Credit; WIN Credit SEC. 321. TARGETED JOBS CREDIT. (a) I N GENERAL.—Section 51 (relating to amount of credit) is amended to read as follows: 26 use 51. "SEC. 5L AMOUNT OF CREDIT. "(a) DETERMINATION OF AMOUNT.—The amount of the credit al- Post, p. 2834. lowable by section 44B for the taxable year shall be the sum of— "(1) 50 percent of the qualified first-year wages for such year, and "(2) 25 percent of the qualified second-year wages for such year. "(b) QUALIFIED WAGES DEFINED.—For purposes of this subpart— "(1) IN GENERAL.—The term 'qualified wages' means the wages paid or incurred by the employer during the taxable year to individuals who are members of a targeted group. "(2) QuAUFiED FIRST-YEAR WAGES.—The term 'qualified first- T :;-^ year wages' means, with respect to any individual, qualified wages attributable to service rendered during the 1-year period beginning with the day the individual begins work for the employer (or, in the case of a vocational rehabilitation referral, the day the individual begins work for the employer on or after the beginning of such individual's rehabilitation plan). "(3) QuAUFiED SECOND-YEAR WAGES.—The term 'qualified .<. second-year wages' means, with respect to any individual, the qualified wages attributable to service rendered during the 1- year period beginning on the day after the last day of the 1-year period with respect to such individual determined under para- graph (2). "(4) ONLY FIRST $6,000 OF WAGES PER YEAR TAKEN INTO AC- COUNT.—The amount of the qualified first-year wages, and the amount of the qualified second-year wages, which may be taken into account with respect to any individual shall not exceed $6,000 per year. "(c) WAGES DEFINED.—For purposes of this subpart—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2831 "(1) IN GENERAL.—Except as otherwise provided in this subsec- tion and subsection (h)(2), the term 'wages' has the meaning given to such term by subsection (b) of section 3306 (determined 26 use 3306. without regard to any dollar limitation contained in such sec- tion). "(2) EXCLUSION FOR EMPLOYERS RECEIVING ON-THE-JOB TRAINING PAYMENTS.—The term 'wages' shall not include any amounts paid by an employer for any period to any individual for whom the employer receives federally funded payments for on-the-job training of such individual for such period. "(3) INDIVIDUALS FOR WHOM WIN CREDIT CLAIMED.—The term 'wages' does not include any amount paid or incurred by the employer to an individual with respect to whom the employer claims credit under section 40. 26 USC 40. "(4) TERMINATION.—The term 'wages' shall not include any amount paid or incurred after December 31,1980. "(d) MEMBERS OF TARGETED GROUPS.—For purposes of this sub- part— "(1) I N GENERAL.—An individual is a member of a targeted group if such individual is— "(A) a vocational rehabilitation referral, "(B) an economically disadvantaged youth, "(C) an economically disadvantaged Vietnam-era veteran, "(D) an SSI recipient, "(E) a general assistance recipient, or "(F) a youth participating in a cooperative education program, or "(G) an economically disadvantaged ex-convict. "(2) VOCATIONAL REHABILITATION REFERRAL.—The term 'voca- tional rehabilitation referral' means any individual who is certi- fied by the designated local agency as— "(A) having a physical or mental disability which, for such individual, constitutes or results in a substantial handicap to employment, and i "(B) having been referred to the employer upon comple- tion of (or while receiving) rehabilitative services pursuant to— "(i) an individualized written rehabilitation plan under a State plan for vocational rehabilitation services approved under the Rehabilitation Act of 1973, or 29 USC 701 "(ii) a program of vocational rehabilitation carried out note. under chapter 31 of title 38, United States Code. "(3) ECONOMICALLY DISADVANTAGED YOUTH.— "(A) IN GENERAL.—The term 'economically disadvantaged youth' means any individual who is certified by the designat- ed local agency as— "(i) meeting the age requirements of subparagraph (B), and "(ii) being a member of an economically disadvan- taged family (as determined under paragraph (9)). "(B) AGE REQUIREMENTS.—An individual meets the age requirements of this subparagraph if such individual has attained age 18 but not age 25 on the hiring date. "(4) VIETNAM VETERAN WHO IS A MEMBER OF AN ECONOMICALLY DISADVANTAGED FAMILY.—The term 'Vietnam veteran who is a member of an economically disadvantaged family' means any individual who is certified by the designated local agency as—
92 STAT. 2832 PUBLIC LAW 95-600—NOV. 6, 1978 "(A)(i) having served on active day (other than active duty for training) in the Armed Forces of the United States for a period of more than 180 days, any part of which occurred after August 4,1964, and before May 8,1975, or "(ii) having been discharged or released from active duty in the Armed Forces of the United States for a service- connected disability if any part of such active duty was performed after August 4, 1964, and before May 8, 1975, "(B) not having any day during the premployment period which was a day of extended active duty in the Armed Forces of the United States, "(C) being a member of an economically disadvantaged family (determined under paragraph (9)), and "(D) not having attained the age of 35 on the hiring date. For purposes of subparagraph (B), the term 'extended active duty means a period of more than 90 days during which the individual was on active duty (other than active duty for train- ing). "(5) SSI RECIPIENTS.—The term 'SSI recipient' means any individual who is certified by the designated local agency as receiving supplemental security income benefits under title XVI 42 use 1381. of the Social Security Act (including supplemental security 42 use I382e. income benefits of the type described in section 1616 of such Act 87 Stat. 155. or Section 212 of Public Law 93-66) for any month ending in the pre-employment period. "(6) GENERAL ASSISTANCE RECIPIENTS.— "(A) IN GENERAL.—The term 'general assistance recipient' means any individual who is certified by the designated local agency as receiving assistance under a qualified general assistance program for any period of not less than 30 days ending within the preemployment period. "(B) QUALIFIED GENERAL ASSISTANCE PROGRAM.—The term 'qualified general assistance program' means any program of a State or a political subdivision of a State— "(i) which provides general assistance or similar as- sistance which— "(I) is based on need, and "(II) consists of money payments, and "(ii) which is designated by the Secretary (after con- sultation with the Secretary of Health, Education, and Welfare) as meeting the requirements of clause (i). "(7) ECONOMICALLY DISADVANTAGED EX-CONVICT.—The term 'economically disadvantaged ex-convict' means any individual who is certified by the designated local agency— "(A) as having been convicted of a felony under any statute of the United States or any State, "(B) as being a member of an economically disadvantaged family (as determined under paragraph (9)), and "(C) as having a hiring date which is not more than 5 years after the last date on which such individual was so convicted or was released from prison. "(8) YOUTH PARTICIPATING IN A QUAUFIED COOPERATIVE EDUCA- TION PROGRAM.— "(A) I N GENERAL.—The term 'youth participating in a qualified cooperative education program' means any individ- ual who is certified by the school participating in the program as—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2833 "(i) having attained age 16 and not having attained age 19, "(ii) not having graduated from a high school or vocational school, and "(iii) being enrolled in and actively pursuing a quali- fied cooperative education program. "(B) QUALIFIED COOPERATIVE EDUCATION PROGRAM DE- FINED.—The term 'qualified cooperative education program' means a program of vocational education for individuals who (through written cooperative arrangements between a qualified school and 1 or more employers) receive instruction (including required academic instruction) by alternation of study and school with a job in any occupational field (but only if these 2 experiences are planned by the school and employer so that each contributes to the student's education and employability). "(C) QUALIFIED SCHOOL DEFINED.—The term 'qualified school' means— "(i) a specialized high school used exclusively or prin- cipally for the provision of vocational education to individuals who are available for study in preparation for entering the labor market, "(ii) the department of a high school exclusively or principally used for providing vocational education to persons who are available for study in preparation for entering the labor market, or "(iii) a technical or vocational school used exclusively or principally for the provision of vocational education to persons who have completed or left high school and who are available for study in preparation for entering the labor market. A school which is not a public school shall be treated as a qualified school only if it is exempt from tax under section 501(a). 26 use 501. "(D) INDIVIDUAL MUST BE CURRENTLY PURSUING PRO- GRAM.—Wages shall be taken into account with respect to a qualified cooperative education program only if the wages are attributable to services performed while the individual ^^ meets the requirements of subparagraph (A). "(9) MEMBERS OF ECONOMICALLY DISADVANTAGED FAMILIES.—An individual is a member of an economically disadvantaged family if the designated local agency determines that such individual was a member of a family which had an income during the 6 months immediately preceding the month in which the hiring date occurs, which, on an annual basis would be less than 70 percent of the Bureau of Labor Statistics lower living standard. "(10) PREEMPLOYMENT PERIOD.—The term 'preemployment period' means the 60-day period ending on the hiring date. "(11) HIRING DATE.—The term 'hiring date' means the day the individual is hired by the employer. "(12) DESIGNATED LOCAL AGENCY.—The term 'designated local agency' means the agency for any locality designated jointly by ^ the Secretary and the Secretary of Labor to perform certification of employees for employer in that locality. "(e) QUALIFIED FIRST-YEAR WAGES CANNOT EXCEED 30 PERCENT OF FUTA WAGES FOR ALL EMPLOYEES.—The amount of the qualified first-year wages which may be taken into account under subsection
92 STAT. 2834 PUBLIC LAW 95-600—NOV. 6, 1978 (a)(1) for any taxable year shall not exceed 30 percent of the aggregate unemployment insurance wages paid by the employer during the calendar year ending in such taxable year. For purposes of the preceding sentence, the term 'unemployment insurance wages' has 26 use 3306. the meaning given to the term 'wages by section 3306(b). "(f) REMUNERATION MUST B E FOR TRADE OR BUSINESS EMPLOY- MENT.— "(1) IN GENERAL.—For purposes of this subpart, remuneration paid by an employer to an employee during any year shall be taken into account only if more than one-half of the remunera- tion so paid is for services performed in a trade or business of the employer. "(2) SPECIAL RULE FOR CERTAIN DETERMINATION.—Any determi- nation as to whether paragraph (1), or subparagraph (A) or (B) of subsection (h)(1), applies with respect to any employee for any year shall be made without regard to subsections (a) and (b) of 26 use 52. section 52. "(3) YEAR DEFINED.—For purposes of this subsection and sub- section (h), the term 'year' means the taxable year; except that, for purposes of applying so much of such subsections as relates to subsection (e), such term means the calendar year. "(g) SECRETARY OF LABOR TO NOTIFY EMPLOYERS OF AVAILABILITY OF CREDIT.—The Secretary of Labor, in consultation with the Internal Revenue Service, shall take such steps as may be necessary or appropriate to keep employers apprised of the availability of the Infra. Credit provided by section 44B. "(h) SPECIAL RULES FOR AGRICULTURAL LABOR AND RAILWAY LABOR.—For purposes of this subpart— "(1) UNEMPLOYMENT INSURANCE WAGES.— "(A) AGRICULTURAL LABOR.—If the services performed by any employee for an employer during more than one-half of any pay period (within the meaning of section 3306(d)) taken into account with respect to any year constitute agricultural labor (within the meaning of section 3306(k)), the term 'unemployment insurance wages' means, with respect to the remuneration paid by the employer to such employee for such year, an amount equal to so much of such remuneration 26 use 3121. as constitutes 'wages' within the meaning of section 3121(a), except that the contribution and benefit base for each calendar year shall be deemed to be $6,000. "(B) RAILWAY LABOR.—If more than one-half of remunera- tion paid by an employer to an employee during any year is remuneration for service described in section 3306(c)(9), the term 'unemployment insurance wages' means, with respect to such employee for such year, an amount equal to so much of the remuneration paid to such employee during such year which would be subject to contributions under section 8(a) of the Railroad Unemployment Insurance Act (45 U.S.C. 358(a)) if the maximum amount subject to such contributions were $500 per month. "(2) WAGES.—In any case to which subparagraph (A) or (B) of paragraph (1) applies, the term 'wages' means unemployment insurance wages (determined without regard to any dollar limi- tation)." Ot)) JOBS CREDIT MADE ELECTIVE.— 26 use 44B. (1) Section 44B (relating to credit for employment of certain new employees) is amended—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2835 (A) by striking out "There shall be allowed" in subsection (a) and inserting in lieu thereof "At the election at the taxpayer, there shall be allowed", and (6) by adding at the end thereof the following new subsec- tion: "(c) ELECTION.— "(1) TIME FOR MAKING ELECTION.—An election under subsection (a) for any taxable year may be made (or revoked) at any time before the expiration of the 3-year period beginning on the last date prescribed by law for filing the return for such taxable year (determined without regard to extensions). "(2) MANNER OP MAKING ELECTION.—Any election under sub- section (a) (or revocation thereof) shall be made in such manner as the Secretary may be regulations prescribe." (2) Section 6501 (relating to limitations on assessment and 26 use 6501. collection) is amended by adding at the end thereof the following new subsection: "(q) DEFICIENCY ATTRIBUTABLE TO ELECTION UNDER SECTION 44B.— 26 use 44B. The period for assessing a deficiency attributable to any election under section 44B (or any revocation thereof) shall not expire before the date 1 year after the date on which the Secretary is notified of such election (or revocation)." (c) TECHNICAL AND CONFORMING AMENDMENTS.— (1) AMENDMENTS OF SECTION 52.— 26 use 52. (A) Section 52 (relating to special rules for computing credit for employment of certain new employees) is amended— (i) by striking out subsections (c), (e), (i), and (j), and (ii) by redesignating subsections (d), (f), (g), and (h) as subsections (c), (d), (e), and (f), respectively. (B) Subsections (a) and (b) of section 52 are each amended by striking out "proportionate contribution to the increase in unemployment insurance wages" and inserting in lieu thereof "proportionate share of the wages". (C) Subsection (e) of section 52 (as redesignated by subpara- graph (A)) is amended— (i) by adding "and" at the end of paragraph (1); (ii) by striking out ", and" at the end of paragraph (2) and inserting a period; and (iii) by striking out paragraph (3). (2) AMENDMENTS OF SECTION 53.— 26 use 53. (A) Subsection (a) of section 53 is amended by striking out "the amount of the tax imposed by this chapter for the taxable year, reduced by" and inserting in lieu thereof "90 percent of the excess of the tax imposed by this chapter for the taxable year over the sum of'. (B) Section 53 (relating to limitation based on amount of tax is amended by striking out subsection (b) and by redesig- nating subsection (c) as subsection (b), (d) EFFECTIVE DATE.— 26 use 5i note. (1) IN GENERAL.—Except as otherwise provided in this subsec- tion, the amendments made by this section shall apply to amounts paid or incurred after December 31, 1978, in taxable years ending after such date. (2) SPECIAL RULES FOR NEWLY TARGETED GROUPS.— If (A) INDIVIDUAL MUST BE HIRED AFTER SEPTEMBER 26,1978.— In the case of a member of a newly targeted g r o u p s
92 STAT. 2836 PUBLIC LAW 95-600—NOV. 6, 1978 (i) such individual shall be taken into account for purposes of the credit allowable by section 44B of the Ante, p. 2834. Internal Revenue Code of 1954 only if such individual is first hired by the employer after September 26,1978, and (ii) such individual shall be treated for purposes of such credit as having first begun work for the employer not earlier than January 1,1979. (B) MEMBER OF NEWLY TARGETED GROUP DEFINED.—^For purposes of subparagraph (A), an individual is a member of a newly targeted group if— (i) such individual meets the requirements of subpara- graph (A), (C), (D), (E), (F), or (G) of section 51(d)(1) of Ante, p. 2830. such Codo, and (ii) in the case of an individual meeting the require- ments of subparagraph (A) of such section 51(d)(1), a credit was not claimed for such individual by the tax- payer for a taxable year beginning before January 1, 1979. (3) TRANSITIONAL RULE.—In the case of a taxable year which begins in 1978 and ends after December 81,1978, the amount of the credit allowable by section 44B of the Internal Revenue Ckxle 26 use 53. of 1954 (determined without regard to section 53 of such Code) shall be the sum of— (A) the amount of the credit which would be so allowable without regard to the amendments made by this section, plus (B) the amount which would be so allowable by reason of the amendments made by this section. 26 use 53 note. (4) SUBSECTION (c)(2).—The amendments made by subsection (u)(2) shall apply to taxable years beginning after December 31, 1978. SEC. 322. WORK INCENTIVE PROGRAM CREDIT CHANGES. 26 use 50A. (a) CHANGES IN AMOUNT OF CREDIT.—Section 50A(a) (relating to amount of credit) is amended by striking out paragraphs (1) and (2) and inserting in lieu thereof the following: "(1) GENERAL RULE.—The amount of the credit allowed by 26 use 40. section 40 for the taxable year shall be equal to the sum of— "(A) 50 percent of the first-year work incentive program expenses, and (B) 25 percent of the second-year work incentive program expenses. "(2) LIMITATION BASED ON AMOUNT OF TAX.—Notwithstanding paragraph (1), the amount of the credit allowed by section 40 for the taxable year shall not exceed the liability for tax for the taxable year.". 26 use 50A. (b) CHANGES IN LIMITATIONS.—Subsection (a) of section 50A is amended by striking out paragraphs (4), (5), and (6) and by inserting immediately after paragraph (3) the following new paragraph: "(4) LIMITATION WITH RESPECT TO NONBUSINESS ELIGIBLE EMPLOYEES.— "(A) IN GENERAL.—In the case of any work incentive program expenses paid or incurred by the taxpayer during the taxable year to eligible employees whose services are not performed in connection with a trade or business of the taxpayer— "(i) paragraph (1)(A) shall be applied by substituting *35 percent for '50 percent',
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2837 ' "(ii) subparagraph (B)ofparagraph(l) shall not apply, and "(iii) the aggregate amount of such work incentive program expenses which may be taken into account under paragraph (1) for such taxable year may not exceed $12,000. "(B) DEPENDENT CARE CREDIT MAY NOT BE CLAIMED.—No credit shall be allowed under section 44A with respect to any ^nte, p. 2834. amounts paid or incurred by the taxpayer with respect to which the taxpayer is allowed a credit under section 40. 26 USC 40. "(C) MARRIED INDIVIDUALS.—In the case of a husband or wife who files a separate return, subparagraph (A) shall be applied by substituting '$6,000' and '$12,000'. The preceding sentence shall not apply if the spouse of the taxpayer has no work incentive program expenses described in such subpara- graph for the taxable year.". (c) REPEAL OF PROVISIONS PERMITTING RECOVERY OF CREDIT.— Section 50A is amended by striking out subsections (c) and (d). 26 USC 50A. (d) CHANGES IN DEFINITIONS AND SPECIAL RULES.— (1) Subsection (a) of section 50B (relating to work incentive 26 USC 50B. program expenses) is amended to read as follows: "(a) WORK INCENTIVE PROGRAM EXPENSES.—For purposes of this subpart— "(1) IN GENERAL.—The term 'work incentive program ex- penses' means the amount of wages paid or incurred by the taxpayer for services rendered by eligible employees. "(2) FIRST-YEAR WORK INCENTIVE PROGRAM EXPENSES.—The term 'first-year work incentive program expenses' means, with respect to any eligible employee, work incentive program ex- penses attributable to service rendered during the one-year period which begins on the day the eligible employee begins work for the taxpayer. "(3) SECOND-YEAR WORK INCENTIVE PROGRAM EXPENSES.—The term 'second-year work incentive program expenses' means, with respect to any eligible employee, work incentive program expenses attributable to service rendered during the one-year period which begins on the day after the last day of the one-year period described in paragraph (2). "(4) LIMITATION ON AMOUNT OF WORK INCENTIVE PROGRAM EXPENSES.—Theamountof the work incentive program expenses taken into account with respect to any eligible employee for any one-year period described in paragraph (2) or (3) (as the case may be) shall not exceed $6,000." (2) Subsection (c) of section 50B is amended by striking out paragraphs (1) and (4) and by redesignating paragraphs (2), (3), and (5) as paragraphs (1), (2), and (3), respectively. (3) Subsection (e) of section 50B (relating to estates and trusts) is amended— (A) by inserting "and" at the end of paragraph (1), (B) by striking out ", and" at the end of paragraph (2) and inserting in lieu thereof a period, and (C) by striking out paragraph (3). (4) Section SOB is amended by redesignating subsections (g) and (h) as subsections (h) and (i), respectively, and by inserting after subsection (f) the following new subsection: "(g) SPECIAL RULES FOR CONTROLLED GROUPS.—
92 STAT. 2838 PUBLIC LAW 95-600—NOV. 6, 1978 "(1) CONTROLLED GROUP OF CORPORATIONS.—For purposes of this subpart, all employees of all corporations which are mem- bers of the same controlled group of corporations shall be treated as employed by a single employer. In any such case, the credit (if 26 use 40. any) allowable by section 40 to each such member shall be its proportionate share of the work incentive program expenses giving rise to such credit. For purposes of this subsection, the term 'controlled group of corporations' has the meaning given to 26 use 1563. such term by section 1563(a), except that— "(A) 'more than 50 percent' shall be substituted for *at least 80 percent' each place it appears in section 1563(aXl), and "(B) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. "(2) EMPLOYEES OF PARTNERSHIPS, PROPRIETORSHIPS, ETC., WHICH ARE UNDER COMMON CONTROL.—For purposes of this subpart, under regulations prescribed by the Secretary— "(A) all employees of trades or business (whether or not incorporated) which are under common control shall be treated as employed by a single employer, and 26 use 40. "(B) the credit (if any) allowable by section 40 with respect to each trade or business shall be its proportionate share of the work incentive program expenses giving to such credit. The regulations prescribed under this paragraph shall be based on principles similar to the principles which apply in the case of paragraph (1)." (5) Paragraph (1) of subsection (h) (as redesignated by para- 26 use SOB. graph (4)) of section 50B (relating to eligible employee) is amended to read as follows: "(1) EuGiBLE EMPLOYEE.—For purposes of this subpart the term 'eligible employee' means an individual— "(A) who has been certified by the Secretary of Labor or by the appropriate agency of State or local government as— "(i) being eligible for financial assistance under part A 42 use 601. of title IV of the Social Security Act and as having continually received such financial assistance during the 9-day period which immediately precedes the date on which such individual is hired by the employer, or "(ii) having been placed in employment under a work incentive program established under section 432(bXl) of 42 use 632. the Social Security Act, "(B) who has been employed by the taxpayer for a period in excess of 30 consecutive days on a substantially full-time basis, "(C) who has not displaced any other individual from emplojnnent by the taxpayer, and "(D) who is not a migrant worker. The term 'eligible employee' includes an employee of the tax- payer whose services are not performed in connection with a trade or business of the taxpayer.", (d) DEDUCTION FOR WAGES REDUCED BY AMOUNT OF CREDIT.— 26 use 28oe. (1) Section 280C (relating to portion of wages for which credit is Ante, p. 2834. claimed under section 44B) is amended— (A) by striking our "SECTION 44B" in the caption and inserting in lieu thereof "SECTION 40 OR 44B", (B) by inserting "Ot>) RULE FOR SECTION 44B CREDIT.—" immediately before "No deduction",
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2839 (C) by striking out "this section shall be applied" and inserting in lieu thereof "this subsection shall be applied" in the second sentence, and (D) by inserting immediately after the caption of such - section the following new subsection: "(a) RULE FOR SECTION 40 CREDIT.—No deduction shall be allowed 26 USC 40. for that portion of the work incentive program expenses paid or incurred for the taxable year which is equal to the amount of the credit allowable for the taxable year under section 40 (relating to credit for expenses of work incentive programs) determined without regard to the provisions of section 50A(a)(2) (relating to limitation Ante, p. 2836. based on amount of tax). In the case of a corporation which is a member of a controlled group of corporations (within the meaning of section 50B(g)(l)) or a trade or business which is treated as being Ante, p. 2837. under common control with other trades or businesses (within the meaning of section 50B(g)(2), this subsection shall be applied under rules prescribed by the Secretary similar to the rules applicable under paragraphs (1) and (2) of section 50B(g).". (e) EFFECTIVE D A T E . — 26 USC 50A (1) I N GENERAL.—Except as otherwise provided in this subsec- "ot^. tion, the amendments made by this section shall apply to work incentive program expenses paid or incurred after December 31, 1978, in taxable years ending after such date; except that so much of the amendment made by subsection (a) as affects section 50A(a)(2) of the Internal Revenue Code of 1954 shall apply to taxable years beginning after December 31,1978. (2) SPECIAL RULES FOR CERTAIN ELIGIBLE EMPLOYEES.— (A) ELIGIBLE EMPLOYEES HIRED BEFORE SEPTEMBER 27, 1978.—In the case of any eligible employee (as defined in section 50B(h)) hired before September 27, 1978, no credit Ante, p. 2837. shall be allowed under section 40 with respect to second-year work incentive program expenses (as defined in section 50B(a)) attributable to service performed by such employee. Ante, p. 2837. (B) ELIGIBLE EMPLOYEES HIRED AFTER SEPTEMBER 26,1978.— In the case of any eligible employee (as defined in section 50B(h)) hired after September 27,1978, such individual shall be treated for purposes of the credit allowed by section 40 as 26 USC 40. having first begun work for the taxpayer not earlier than January 1,1979. Subtitle D—Tax-Exempt Bonds PART I—INDUSTRIAL DEVELOPMENT BONDS SEC. 331. INCREASE IN LIMIT ON SMALL ISSUES OF INDUSTRIAL DEVEL- OPMENT BONDS. (a) GENERAL RULE.—Subparagraph (D) of section 103(b)(6) (relating 26 USC 103. to $5,000,000 limit in certain cases) is amended by striking out "$5,000,000" in the heading and in the text and inserting in lieu thereof "$10,000,000". (b) TREATMENT OF CERTAIN URBAN DEVELOPMENT ACTION GRANTS.—Paragraph (6) of section 103(b) (relating to exemption for certain small issues) is amended by adding at the end thereof the following new subparagraph: "(I) AGGREGATE AMOUNT OF CAPITAL EXPENDITURES WHERE THERE IS URBAN DEVELOPMENT ACTION GRANT.—In the case of any issue substantially all of the proceeds of which are to be
92 STAT. 2840 PUBLIC LAW 95-600—NOV. 6, 1978 used to provide facilities with respect to which an urban development action grant has been made under section 119 42 use 5301 of the Housing and Community Development Act of 1974, note. capital expenditures of not to exceed $10,000,000 shall not be taken into account for purposes of applying subparagraph (D)(ii)." 26 use 103 (c) EFFECTIVE DATES.— "°*^- (1) The amendments made by subsection (a) shall apply to— (A) obligations issued after December 31, 1978, in taxable years ending after such date, and (B) capital expenditures made after December 31, 1978, with respect to obligations issued before January 1, 1979. (2) The amendment made by subsection 0^) shall apply to— (A) obligations issued after September 30,1979, in taxable years ending after such date, and (B) capital expenditures made after September 30, 1979, with respect to obligations issued after such date. SEC. 332. LOCAL FURNISHING OF ELECTRIC ENERGY. 26 use 103. (a) IN GENERAL.—Paragraph (4) of section 103(b) (relating to certain exempt activities) is amended by adding at the end thereof the following new sentence: "For purposes of subparagraph (E), the local furnishing of electric energy from a facility shall include furnishing solely within the area consisting of a city and 1 contiguous county." 26 use 103 (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall note- apply to taxable years ending after April 30, 1968, but only with respect to obligations issued after such date. SEC. 333. INDUSTRIAL DEVELOPMENT BONDS FOR WATER FACILITIES. 26 use 103. (a) IN GENERAL.—Subparagraph (G) of section 103(b)(4) (relating to industrial development bonds) is amended to read as follows: "(G) facilities for the furnishing of water for any purpose if— "(i) the water is or will be made available to members of the general public (including electric utility, indus- trial, agricultural, or commercial users), and "(ii) either the facilities are operated by a governmen- tal unit or the rates for the furnishing or sale of the water have been established or approved by a State or political subdivision thereof, by an agency or instrumen- tality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof." 26 use 103 (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall note. apply to obligations issued after the date of the enactment of this Act in taxable years ending after such date. SEC. 334. A D V A N C E REFUNDING OF INDUSTRIAL DEVELOPMENT BONDS FOR CERTAIN PUBLIC WORKS. 26 use 103. (a) I N GENERAL.—Subsection Oa) of section 103 (relating to indus- trial development bonds) is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph: "(7) ADVANCE REFUNDING OF QUALIFIED PUBLIC FACILITIES.— "(A) I N GENERAL.—Paragraph (1) shall not apply to a refunding issue if substantially all the proceeds of the
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2^541 refunded issue were used to provide a qualified public facility. "(B) QUALIFIED PUBUC FACIUTY DEFINED.—For purposes of subparagraph (A), the term 'qualified public facility' means facilities described in subparagraph (C) or (D) of paragraph (4) which are generally available to the general public." (b) OBUGATION MAY NOT B E HELD BY SUBSTANTIAL USER.—Para- 26 use 103. graph (8) of section 103(b) (as redesignated by subsection (a)) is amended by striking out "and (6)" and inserting in lieu thereof "(6), and (7)". (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 103 apply to obligations issued after the date of the enactment of this "ot^. Act. PART II—OTHER TAX-EXEMPT BOND PROVISIONS SEC. 336. DECLARATORY JUDGMENT PROCEDURE FOR JUDICIAL REVIEW OF DETERMINATIONS RELATING TO GOVERNMENTAL OBLI- GATIONS. (a) IN GENERAL.—Part IV of subchapter C of chapter 76 (relating to declaratory judgments) is amended by adding at the end thereof the following new section: "SEC. 7478. DECLARATORY JUDGMENTS RELATING TO STATUS OF CER. 26 USC 7478. TAIN GOVERNMENTAL OBLIGATIONS. "(a) CREATION OF REMEDY.—In a case of actual controversy involving— "(1) a determination by the Secretary whether prospective obligations are described in section 103(a), or 26 USC 103. "(2) a failure by the Secretary to make a determination with respect to any matter referred to in paragraph (1), upon the filing of an appropriate pleading, the Tax Court may make a declaration whether such prospective obligations are described in section 103(a). Any such declaration shall have the force and effect of a decision of the Tax Court and shall be reviewable as such. "(b) LIMITATIONS.— "(1) PETITIONER.—A pleading may be filed under this section only by the prospective issuer. "(2) EXHAUSTION OF ADMINISTRATIVE REMEDIES.—The court shall not issue a declaratory judgment or decree under this section in any proceeding unless it determines that the petitioner has exhausted all available administrative remedies within the Internal Revenue Service. A petitioner shall be deemed to have exhausted its administrative remedies with respect to a failure of the Secretary to make a determination with respect to an issue of obligations at the expiration of 180 days after the date on which the request for such determination was made if the petitioner has taken, in a timely manner, all reasonable steps to secure such determination. "(3) TIME FOR BRINGING ACTION.—If the Secretary sends by certified or registered mail notice of his determination as de- scribed in subsection (a)(1) to the petitioner, no proceeding may be initiated under this section unless the pleading is filed before the 91st day after the date of such mailing. (b) AUTHORITY OF TAX COURT To ASSIGN PROCEEDINGS TO COMMIS- SIONERS.— (1) I N GENERAL.—Subsection (c) of section 7456 (relating to 26 USC 7456. commissioners of the Tax Court) is amended by adding at the end thereof the following new sentence: "The chief judge may assign 39-194 O—80—pt. 3 14 : QL3
92 STAT. 2842 PUBLIC LAW 95-600—NOV. 6, 1978 26 use 7428, proceedings under sections 7428,7476,7477, and 7478 to be heard 7476, 7477, {,y I\IQ commissioners of the court, and the court may authorize a ^'^^^- commissioner to make the decision of the court with respect to such proceedings, subject to such conditions and review as the court may by rule provide." (2) TECHNICAL AMENDMENTS.— 26 use 7476. (A) Section 7476 is amended by striking out subsection (c) and by redesignating subsections (d) and (e) and subsections (c) and (d), respectively. 26 use 7477. (B) Section 7477 is amended by striking out subsection (c). (c) TECHNICAL AND CONFORMING AMENDMENTS.— 26 use 7482. (1) Paragraph (1) of section 74820)) (relating to venue for appeal of decision of Tax Court) is amended— (A) by striking out "provided in paragraph (2)" in para- graph (1) and inserting in lieu thereof "provided in para- graphs (2) and (3)", and (B) by adding at the end thereof the following new paragraph: "(3) DECLARATORY JUDGMENT ACTIONS RELATING TO STATUS OF CERTAIN GOVERNMENTAL OBLIGATIONS.—In the case of any deci- 26 use 7478. gion of the Tax Court in a proceeding under section 7478, such decision may only be reviewed by the Court of Appeals for the - District of Columbia." (2) The table of sections for part IV of subchapter C of chapter 26 use 7476. 76 is amended by adding at the end thereof the following new item: "Sec. 7478. Declaratory judgments relating to status of certain governmental obligations." 26 use 7478 (d) EFFECTIVE DATE.—The amendments made by this section shall note- apply to requests for determinations made after December 81,1978. SEC. 337. DISPOSITION OF AMOUNTS GENERATED BY ADVANCE REFUND- ING OF CERTAIN GOVERNMENTAL OBLIGATIONS. 26 use 103 (a) GENERAL RULE.—The payment to a charitable organization or a "<***• refund profit held in a trust fund or escrow arrangement, or held by an underwriter or other person under a qualified agreement in accordance with that agreement— (1) shall not cause the refunding obligations out of which the refund profit arose to be treated as arbitrage bonds (within the 26 use 103. meaning of section 103(c) of the Internal Revenue Code of 1954) and (2) may be paid without penalty imposed on the issuer of such obligations. (b) RULE FOR GOVERNMENTS WHICH HAVE ALREADY PAID ARBITRAGE PROFITS TO THE UNITED STATES.—In the case of a State or local government which, before January 1,1977— (1) requested in writing a rule by the Internal Revenue Service with respect to the tax consequences of paying refund profit to charitable organizations, (2) failed to rieceive a favorable ruling and did not pay the refund profit to a charitable organization, and which accounted to the United States for refund profit by direct payment to the United States, or by the purchase of low-interest United States obligations, the Secretary of the Treasury shall pay, out of any amounts in the Treasury not otherwise appropriated, an ^^, amount equal to the refund profit for which the State or local overnment has accounted to the United States. Amounts paid to a § tate or local government under this subsection shall be distributed
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2843 to such charitable organizations within 90 days after the date on which the payment is received by the State or local government in the same manner as if the refund profit had not been paid to the United States and met the requirements of subsection (a), (c) DEFINITIONS.—For purposes of this section— (1) REFUND PROFIT.—The term "refund profit" means interest, profit, or other amounts generated by, or arising out of, the advance refunding, before September 24,1976, of an obligation of a State or local government described in section 103 of such Code. 26 USC 103. (2) CHARITABLE ORGANIZATION.—The term "charitable organi- zation" means an organization described in section 501(c)(3) of 26 USC 501. such Code and exempt from taxation under section 501(a) of such Code other than an organization described in section 509(a) of 26 USC 509. such Code. (3) QUALIFIED AGREEMENT.—The term "qualified agreement" means an agreement (whether or not enforceable) which pro- vides for, or contemplates, the payment of refund profit to one or more charitable organizations. (4) LOW-INTEREST UNITED STATES OBLIGATIONS.—The term "low- interest United States obligations" means United States obliga- ; tions which bear an interest rate lower than the highest rate of interest borne by public debt securities generally available for purchase at the time such obligations were purchased. Subtitle E—Small Business Provisions PART I—PROVISIONS RELATING TO SUBCHAPTER S SEC. 341. SUBCHAPTER S CORPORATIONS ALLOWED 15 SHAREHOLDERS. (a) GENERAL RULE.—Paragraph (1) of section 1371(a) (defining small 26 USC 1371. business corporation) is amended to read as follows: "(1) have more than 15 shareholders;". (b) TECHNICAL AMENDMENTS.— (1) Section 1371 is amended by striking out subsection (e) and by redesignating subsection (f) as subsection (e). (2) Paragraph (2) of section 1371(a) is amended by striking out "subsection (f)" and inserting in lieu thereof "subsection (e)". SEC. 342. PERMITTED SHAREHOLDERS OF SUBCHAPTER S CORPORA- TIONS. (a) HUSBAND AND WIFE TREATED AS O N R INDIVIDUAL.—Subsection (c) of section 1371 (relating to stock owned by husband and wife) is amended to read as follows: "(c) STOCK OWNED BY HUSBAND AND WIFE.—For purposes of subsec- tion (a)(1), a husband and wife (and their estates) shall be treated as one shareholder." (b) GRANTOR OF GRANTOR TRUST TREATED AS THE SHAREHOLDER.— Subsection (e) of section 1371 (as redesignated by section 331(b)(1) of this Act) is amended by inserting after the first sentence the follow- ing new sentence: "In the case of a trust described in paragraph (1), the grantor shall be treated as the shareholder." SEC. 343. EXTENSION OF PERIOD FOR MAKING SUBCHAPTER S ELEC- TIONS. (a) GENERAL RULE.—Subsection (c) of section 1372 (relating to when 26 USC 1372. and how subchapter S election may be made) is amended to read as follows: "(c) WHEN AND HOW MADE.— "(1) I N GENERAL.—An election under subsection (a) may be
92 STAT. 2844 PUBLIC LAW 95-600—NOV. 6, 1978 ^^ made by a small business corporation for any taxable year— "(A) at any time during the preceding taxable year, or "(B) at any time during the first 75 days of the t£ixable year. "(2) TREATMENT OF CERTAIN LATE ELECTIONS.—If— "(A) a small business corporation makes an election under subsection (a) for any taxable year, and "(B) such election is made after the first 75 days of the taxable year and on or before the last day of such taxable year, then such election shall be treated as made for the following taxable year. "(3) MANNER OF MAKING ELECTION.—An election under subsec- tion (a) shall be made in such manner as the Secretary shall prescribe by regulations." (b) TECHNICAL AMENDMENTS.— 26 use 1372. (1) The second sentence of section 1372(a) is amended to read as follows: "Such election shall be valid only if all persons who are shareholders in such corporation on the day on which such election is made consent to such election." (2) Subparagraph (A) of section 1372(e)(1) is amended to read as follows: "(A) An election under subsection (a) made by a small business corporation shall terminate if any person who was not a shareholder in such corporation on the day on which the election is made becomes a shareholder in such corpora- tion and affirmatively refuses (in such manner as the Secre- tary may by regulations prescribe) to consent to such elec- tion on or before the 60th day after the day on which he acquires the stock." (3) Subparagraph (C) of section 1372(e)(1) is amended by insert- ing "(or, if later, the first taxable year for which such election would otherwise have been effective)" after "in the corporation". SEC. 344. EFFECTIVE DATE. 26 use 1371 The amendments made by this part shall apply to taxable years note. beginning after December 31,1978. PART II—OTHER PROVISIONS SEC. 345. SMALL BUSINESS CORPORATION STOCK. (a) INCREASE TO $1,000,000 AMOUNT OF STOCK POTENTIALLY SUBJECT TO ORDINARY LOSS TREATMENT; REMOVAL OF EQUITY CAPITAL TEST.— 26 use 1244. Subsection (c) of section 1244 (relating to losses on small business stock) is amended by striking out paragraph (2) and inserting in lieu thereof the following: "(3) SMALL BUSINESS CORPORATION DEFINED.— "(A) IN GENERAL.—For purposes of this section, a corpora- tion shall be treated as a small business corporation if the aggregate amount of money and other property received by the corporation for stock, as a contribution to capital, and as paid-in surplus, does not exceed $1,000,000. The determina- tion under the preceding sentence shall be made as of the time of the issuance of the stock in question but shall include amounts received for such stock and for all stock theretofore V issued. "(B) AMOUNT TAKEN INTO ACCOUNT WITH RESPECT TO PROP- ERTY.—For purposes of subparagraph (A), the amount taken into account with respect to any property other than money
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2845 shall be the amount equal to the adjusted basis to the corporation of such property for determining gain, reduced by any liability to which the property was subject or which was assumed by the corporation. The determination under the preceding sentence shall be made as of the time the property was received by the corporation." (b) INCREASE IN MAXIMUM AMOUNT TREATED AS ORDINARY Loss FOR ANY TAXABLE YEAR.—Subsection (b) of section 1244 is amended— 26 use 1244.. (1) by striking out "$25,000" in paragraph (1) and inserting in lieu thereof "$50,000", and (2) by striking out "$50,000" in paragraph (2) and inserting in lieu thereof "$100,000". (c) REMOVAL OP REQUIREMENT THAT STOCK ISSUANCE BE PURSUANT TO PLAN.—Subsection (c) of section 1244 (defining section 1244 stock) is amended by striking out paragraph (1) and inserting in lieu thereof the following new paragraphs: "(1) IN GENERAL.—For purposes of this section, the term 'section 1244 stock' means common stock in a domestic corpora- tion if— "(A) at the time such stock is issued, such corporation was a small business corporation, "(B) such stock was issued by such corporation for money or other property (other than stock and securities), and "(C) such corporation, during the period of its 5 most recent taxable years ending before the date the loss on such stock was sustained, derived more than 50 percent of its aggregate gross receipts from sources other than royalties, rents, dividends, interests, annuities, and sales or exchanges of stocks or securities. "(2) R U L E S FOR APPUCATION OF PARAGRAPH (i)(c).— "(A) PERIOD TAKEN INTO ACCOUNT WITH RESPECT TO NEW CORPORATIONS.—For purposes of paragraph (1)(C), if the corporation has not been in existence for 5 taxable years ending before the date the loss on the stock was sustained, there shall be substituted for such 5-year period— "(i) the period of the corporation's taxable years ending before such date, or "(ii) if the corporation has not been in existence for 1 taxable year ending before such date, the period such corporation has been in existence before such date. "(B) GROSS RECEIPTS FROM SALES OF SECURITIES.—For pur- poses of paragraph (1)(C), gross receipts from the sales or exchanges of stock or securities shall be taken into account only to the extent of gains therefrom. "(C) NONAPPUCATION WHERE DEDUCTIONS EXCEED GROSS INCOME.—Paragraph (1)(C) shall not apply with respect to any corporation if, for the period taken into account for purposes of paragraph (1)(C), the amount of the deductions allowed by this chapter (other than by sections 172,243,244, and 245) exceeds the amount of gross income." 26 use 172, (d) TECHNICAL AMENDMENTS.—Paragraph (2) of section 1244(d) 55^/,!^'o^"*^' (relating to special rules) is amended— 2" ^^^ ^•^^• (1) by striking out "subparagraph (E)" and inserting in lieu thereof "subparagraph (C)', and (2) by striking out "paragraphs (1)(E) and (2)(A)" and inserting in lieu thereof "paragraphs (1)(C) and (3XA)". (e) EFFECTIVE DATE.—The amendments made by this section shall 26 use 1244 apply to stock issued after the date of the enactment of this Act. "ote.
92 STAT. 2846 PUBLIC LAW 95-600—NOV. 6, 1978 Subtitle F—Accounting Provisions SEC. 351, TREATMENT OF CERTAIN CLOSELY HELD FARM CORPORA- TIONS FOR PURPOSES OF RULE REQUIRING ACCRUAL ACCOUNTING. 26 use 447. (a) GENERAL RULE.—Section 447 (relating to method of accounting for corporations engaged in farming) is amended by adding at the end thereof the following new subsection: "(h) EXCEPTION FOR CERTAIN CLOSELY HELD CORPORATIONS.— "(1) IN GENERAL.—This section shall not apply to any corpora- tion if, on October 4,1976, and at all times thereafter— "(A) members of 2 families (within the meaning of subsec- tion (d)(1)) have owned (directly or through the application of subsection (d)) at least 65 percent of the total combined voting power of all classes of stock of such corporation ?? entitled to vote, and at least 65 percent of the total number of 1 shares of all other classes of stock of such corporation; or "(B)(i) members of 3 families (within the meaning of ;. subsection (d)(1)) have owned (directly or through the appli- cation of subsection (d)) at least 50 percent of the total combined voting power of all classes of stock of such corpora- tion entitled to vote, and at least 50 percent of the total number of shares of all other classes of stock of such corporation; and "(ii) substantially all of the stock of such corporation which is not so owned (directly or through the application of subsection (d)) by members of such 3 families is owned directly— "(I) by employees of the corporation or members of 26 use 267. their families (within the meaning of section 267(cX4)), or "(II) by a trust for the benefit of the employees of such 26 use 401. corporation which is described in section 401(a) and 26 use 501. which is exempt from taxation under section 501(a). "(2) STOCK HELD BY EMPLOYEES, ETC.—For purposes of this subsection, stock which— "(A) is owned directly by employes of the corporation or members of their families (within the meaning of section 26 use 267. 267(c)(4)) or by a trust described in paragraph (l)(B)(ii)(II), and "(B) was acquired on or after October 4, 1976, from the corporation or from a member of a family which, on October 4, 1976, was described in subparagraph (A) or (B)(i) of paragraph (1), shall be treated as owned by a member of a family which, on October 4, 1976, was described in subparagraph (A) or (B)(i) of paragraph (1). "(3) CORPORATION MUST BE ENGAGED IN FARMING.—This subsec- tion shall apply only in the case of a corporation which was, on October 4,1976, and at all times thereafter, engaged in the trade or business of farming." 26 use 447 (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall note. apply to taxable years beginning after December 31,1977. SEC. 352. ACCOUNTING FOR GROWING CROPS. 26 use 447 (a) APPLICATION OF SECTION.—This section shall apply to a taxpayer note. VvllO— (1) is a farmer, nurseryman, or florist, ^i : VJ (2) is on an accrual method of accounting, and
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2847 (3) is not required by section 447 of the Internal Revenue Code of 1954 to capitalize preproductive period expenses. 26 USC 447. (b) TAXPAYER MAY NOT B E REQUIRED TO INVENTORY GROWING CROPS.—A taxpayer to whom this section applies may not be required to inventory growing crops for any taxable year beginning after December 31,1977. (c) TAXPAYER MAY ELECT TO CHANGE TO CASH METHOD.—A tax- payer to whom this section applies may, for any taxable year beginning after December 31, 1977 and before January 1, 1981, change to the cash receipts and disbursements method of accounting with respect to any trade or business in which the principal activity is growing crops. (d) SECTION 481 OF CODE TO APPLY.—Any change in the way in 26 USC 481. which a taxpayer accounts for the costs of growing crops resulting from the application of subsection (b) or (c)— (1) shall not require the consent of the Secretary of the Treasury or his delegate, and (2) shall be treated, for purposes of section 481 of the Internal "^ ': Revenue Code of 1954, as a change in the method of accounting initiated by the taxpayer. (e) GROWING CROPS.—For purposes of this section, the term "grow- ing crops" does not include trees grown for lumber, pulp, or other nonlife purposes. SEC. 353. TREATMENT OF CERTAIN FARMS FOR PURPOSES OF RULE RE- QUIRING ACCRUAL ACCOUNTING. (a) GENERAL RULE.—Section 447 (relating to method of accounting 26 USC 447. for corporations engaged in farming) is amended by striking out "nursery" in subsection (a) thereof and adding in lieu thereof "nursery or sod farm". (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 447 apply to taxable years beginning after December 31,1976. "f**^- Subtitle G—Other Business Provisions SEC 361. DISALLOWANCE OF CERTAIN DEDUCTIONS FOR YACHTS, HUNT- ING LODGES, ETC. (a) EXTENSION OF RULE DISALLOWING DEDUCTIONS FOR FACILITIES.— So much of paragraph (1) of section 274(a) (relating to disallowance of 26 USC 274. certain entertainment, etc., expenses) as follows subparagraph (A) is amended to read as follows: "(B) FACILITY.—With respect to a facility used in connec- tion with an activity referred to in subparagraph (A). In the case of an item described in subparagraph (A), the deduction shall in no event exceed the portion of such item which meets the requirements of subparagraph (A).". (b) COUNTRY CLUBS.—Paragraph (2) of section 274(2) (relating to special rules) is amended by adding at the end thereof the following new subparagraph: "(C) In the case of a country club, paragraph (1)(B) shall apply unless the taxpayer establishes that the facility was used primarily for the furtherance of the taxpayer's trade or business and that the item was directly related to the active conduct of such trade or business." (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 274 apply to items paid or incurred after December 31, 1978, in taxable "o^^- years ending after such date.
92 STAT. 2848 PUBLIC LAW 95-600—NOV. 6, 1978 SEC. 362. DEFICIENCY DIVIDEND PROCEDURE FOR REGULATED INVEST- MENT COMPANIES. (a) GENERAL RULE.—Subchapter M of chapter 1 (relating to regu- lated investment companies and real estate investment trusts) is amended by adding at the end thereof the following new part: "PART I I I - P R O V I S I O N S WHICH APPLY TO BOTH REGULATED INVESTMENT COMPANIES AND REAL ESTATE INVESTMENT TRUSTS "Sec. 860. Deduction for deficiency dividends. 26 use 860. "SEC. 860. DEDUCTION FOR DEFICIENCY DIVIDENDS. "(a) GENERAL RULE.—If a determination with respect to any quali- fied investment entity results in any adjustment for any taxable year, a deduction shall be allowed to such entity for the amount of deficiency dividends for purposes of determining the deduction for 26 use 852, dividends paid (for purposes of section 852 or 857, whichever applies) 857. for such year. "(b) QUALIFIED INVESTMENT ENTITY DEFINED.—For purposes of this section, the term 'qualified investment entity' means— "(1) a regulated investment company, and "(2) a real estate investment trust. "(c) RULES FOR APPLICATION OF SECTION.— "(1) INTEREST AND ADDITIONS TO TAX DETERMINED WITH RESPECT TO THE AMOUNT OF DEFICIENCY DIVIDEND DEDUCTION ALLOWED.— For purposes of determining interest, additions to tax, and additional amounts— "(A) the tax imposed by this chapter (after taking into account the deduction allowed by subsection (a)) on the qualified investment entity for the taxable year with respect to which the determination is made shall be deemed to be increased by an amount equal to the deduction allowed by subsection (a) with respect to such taxable year, "(B) the last date prescribed for payment of such increase in tax shall be deemed to have been the last date prescribed for the payment of tax (determined in the manner provided 26 use 6601. by section 6601(b)) for the taxable year with respect to which the determination is made, and "(C) such increase in tax shall be deemed to be paid as of the date the claim for the deficiency dividend deduction is filed. "(2) CREDIT OR REFUND,—If the allowance of a deficiency dividend deduction results in an overpayment of tax for any taxable year, credit or refund with respect to such overpayment shall be made as if on the date of the determination 2 years remained before the expiration of the period of limitations on the filing of claim for refund for the taxable year to which the overpayment relates. "(d) ADJUSTMENT.—For purposes of this section— "(1) ADJUSTMENT IN THE CASE OF REGULATED INVESTMENT COM- PANY.—In the case of any regulated investment company, the term 'adjustment' means— "(A) any increase in the investment company taxable income of the regulated investment company (determined without regard to the deduction for dividends paid (as 26 use 561. defined in section 561)), "(B) any increase in the amount of the excess described in 26 use 852. section 852(b)(3XA) (relating to the excess of the net capital
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2849 gain over the deduction for capital gain dividends paid), and "(C) any decrease in the deduction for dividends paid (as defined in section 561) determined without regard to capital 26 USC 561. . gains dividends. "(2) ADJUSTMENT IN THE CASE OF REAL ESTATE INVESTMENT TRUST.—In the case of any real estate investment trust, the term 'adjustment' means— "(A) any increase in the sum of— "(i) the real estate investment trust taxable income of the real estate investment trust (determined without regard to the deduction for dividends paid (as defined in section 561) and by excluding any net capital gain), and "(ii) the excess of the net income from foreclosure property (as defined in section 857(b)(4)(B)) over the tax 26 USC 857. on such income imposed by section 857(b)(4)(A), "(B) any increase in the amount of the excess described in section 857(b)(3)(A)(ii) (relating to the excess of the net capital gain over the deduction for capital gains dividends paid), and "(C) any decrease in the deduction for dividends paid (as defined in section 561) determined without regard to capital 26 USC 561. gains dividends. "(e) DETERMINATION.—For purposes of this section, the term 'deter- mination'means— "(1) a decision by the Tax Court, or a judgment, decree, or other order by any court of competent jurisdiction, which has become final; "(2) a closing agreement made under section 7121; or 26 USC 7121. "(3) under regulations prescribed by the Secretary, an agree- ment signed by the Secretary and by, or on behalf of, the qualified investment entity relating to the liability of such entity for tax. "(f) EFFICIENCY DIVIDENDS.— "(1) DEFINITION.—For purposes of this section, the term 'defi- ciency dividends' means a distribution of property made by the qualified investment entity on or after the date of the determina- tion and before filing claim under subsection (g), which would have been includible in the computation of the deduction for dividends paid under section 561 for the taxable year with respect to which the liability for tax resulting from the determi- nation exists if distributed during such taxable year. No distribu- tion of property shall be considered as deficiency dividends for purposes of subsection (a) unless distributed within 90 days after the determination, and unless a claim for a deficiency dividend deduction with respect to such distribution is filed pursuant to subsection (g). "(2) LIMITATIONS.— "(A) ORDINARY DIVIDENDS.—The amount of deficiency divi- dends (other than deficiency dividends qualifying as capital gain dividends) paid by a qualified investment entity for the taxable year with respect to which the liability for tax resulting from the determination exists shall not exceed the sum of— "(i) the excess of the amount of increase referred to in subparagraph (A) of paragraph (1) or (2) of subsection (d) (whichever applies) over the amount of any increase in the deduction for dividends paid computed without regard to capital gain dividends) for such taxable year which results from such determination, and
92 STAT. 2850 PUBLIC LAW 95-600—NOV. 6, 1978 • ( "(ii) the amount of decreased referred to in subpara- graph (C) of paragraph (1) or (2) of subsection (d) (which- < ever applies). "(B) CAPITAL GAIN DIVIDENDS.—The amount of deficiency dividends qualifying as capital gain dividends paid by a qualified investment entity for the taxable year with respect to which the liability for tax resulting from the determina- tion exists shall not exceed the amount by which (i) the increase referred to in subparagraph (B) of paragraph (1) or (2) of subsection (d) (whichever applies), exceeds (ii) the amount of any dividends paid during such taxable year which are designated as capital gain dividends after such determination. "(3) EFFECT ON DIVIDENDS PAID DEDUCTION.— "(A) FOR TAXABLE YEAR IN WHICH PAID.—Deficiency divi- dends paid in any taxable year shall not be included in the amount of dividends paid for such year for purposes of computing the dividends paid deduction for such year. "(B) FOR PRIOR TAXABLE YEAR.—Deficiency dividends paid in anj^ taxable year shall not be allowed for purposes of 26 use 855, section 855(a) or 858(a) in the computation of the dividends 858. paid deduction for the taxable year preceding the taxable year in which paid. "(g) CLAIM REQUIRED.—No deficiency dividend deduction shall be allowed under subsection (a) unless (under regulations prescribed by the Secretary) claim therefore is filed within 120 days after the date of the determination. "(h) SUSPENSION OF STATUTE OF LIMITATIONS AND STAY OF COLLEC- TION.— "(1) SUSPENSION OF RUNNING OF STATUTE.—If the qualified investment entity files a claim as provided in subsection (g), the 26 use 6501. running of the statute of limitations provided in section 6501 on the making of assessments, and the bringing of distraint or a proceeding in court for collection, in respect of the deficiency established by a determination under this section, and all inter- est, additions to tax, additional amounts, or assessable penalties in respect thereof, shall be suspended for a period of 2 years after the date of the determination. "(2) STAY OF COLLECTION.—In the case of any deficiency estab- lished by a determination under this section— "(A) the collection of the deficiency, and all interest, additions to tax, additional amounts, and assessable penal- ties in respect thereof, shall, except in cases of jeopardy, be stayed until the expiration of 120 days after the date of the determination, and "(B) if claim for a deficiency dividend deduction is filed under subsection (g), the collection of such part of the deficiency as is not reduced by the deduction for deficiency dividends provided in subsection (a) shall be stayed until the date the claim is disallowed (in whole or in part), and if disallowed in part collection shall be made only with respect to the part disallowed. No distraint or proceeding in court shall be begun for the collection of an amount the collection of which is stayed under subparagraph (A) or (B) during the period for which the collec- tion of such amount is stayed. "(i) DEDUCTION DENIED IN CASE OF FRAUD.—No deficiency dividend deduction shall be allowed under subsection (a) if the determination
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2851 contains a finding that any part of any deficiency attributable to an adjustment with respect to the taxable year is due to fraud with intent to evade tax or to willfuU failure to file an income tax return within the time prescribed by law or prescribed by the Secretary in pursuance of law. "(j) PENALTY.— "For assessable penalty with respect to liability for tax of a qualified investment entity whicii is allowed a deduction under subsection (a), see section 6697." (b) ASSESSABLE PENALITIES.—Section 6697 (relating to assessable . _, . ^^ penalties with respect to liability for tax of real estate investment !, " trusts) is amended to read as follows: "SEC. 6697. ASSESSABLE PENALTIES WITH RESPECT TO LIABILITY FOR 26 USC 6697. TAX OF QUALIFIED INVESTMENT ENTITIES. "(a) CIVIL PENALTY.—In addition to any other penalty provided by law, any qualified investment entity (as defined in section 860(b)) whose tax liability for any taxable year is deemed to be increased pursuant to section 860(c)(1)(A) (relating to interest and additions to 26 USC 860. tax determined with respect to the amount of the deduction for deficiency dividends allowed) shall pay a penalty in an amount equal to the amount of interest (for which such entity is liable) which is attributable solely to such increase. "(b) 50-PERCENT LIMITATION.—The penalty payable under this section with respect to any determination shall not exceed one-half of the amount of the deduction allowed by section 860(a) for such taxable year. "(c) DEFICIENCY PROCEDURES NOT T O APPLY.—Subchapter B of chapter 63 (relating to deficiency procedure for income, estate, gift, 26 USC 6211. and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a)." (c) LATE DESIGNATION AND PAYMENT OF CAPITAL GAIN DIVIDEND.— 26 use 852. The first sentence of subparagraph (C) of section 852(b)(3) (defining •- capital gain dividend) is amended by inserting before the period at the end thereof the following: "; except that, if there is an increase in the excess described in subparagraph (A) of this paragraph for such year which results from a determination (as defined in section 860(e)), 26 USC 860. such designation may be made with respect to such increase at any time before the expiration of 120 days after the date of such determination ". (d) TECHNICAL AND CONFORMING AMENDMENTS.— (1) Paragraph (3) of section 316(b) (relating to deficiency 26 USC 316. dividend distributions by a real estate investment trust) is amended— (A) by striking out "section 859(d)" and inserting in lieu thereof "section 860(0", and Ei (B) by striking out "REAL ESTATE INVESTMENT TRUST" in the :- -.: paragraph heading and inserting in lieu thereof "REGULATED INVESTMENT COMPANY OR REAL ESTATE INVESTMENT TRUST". (2) Paragraph (25) of section 381(c) is amended— 26 USC 381. (A) by striking out "section 859(d)" and inserting in lieu thereof "section 860(f)", (B) by striking out "section 859" and inserting in lieu thereof "section 860", and (C) by striking out "REAL ESTATE INVESTMENT TRUST" in the paragraph heading and inserting in lieu thereof "REGULATED INVESTMENT COMPANY OR REAL ESTATE INVESTMENT TRUST". (3) Subparagraph (C) of section 85705)(3) is amended by striking 26 USC 857. out "section 859(c)" and inserting in lieu thereof "section 860(e) .
92 STAT. 2852 PUBLIC LAW 95-600—NOV. 6, 1978 26 use 6422, (4) Sections 6422(14) and 6515(5) are each amended— 6515. (A) by inserting "regulated investment company or" before "re£Q estate investment trust", and (B) by striking out "859" and inserting in lieu thereof "860", 26 use 6503. (5) Paragraph (5) of section 6503(i) is amended to read as follows: "(5) Deficiency dividends in the case of a reg^ulated investment company or a real estate investment trust, see section 860(h)." (6) Part II of subchapter M of chapter 1 is amended by striking out 26 use 859, section 859 and redesignating section 860 as section 859. ^^- (7) The table of sections for part II of subchapter M of chapter 1 is simended by striking out the items relating to sections 859 and 860 and inserting in lieu thereof the following: "Sec. 859. Adoption of annual accounting period." (8) The table of parts for subchapter M of chapter 1 is amended by adding at the end thereof the following new item: "Part III. Provisions which apply to both regulated investment companies and real estate investment trusts." (9) The table of sections for subchapter B of chapter 68 is 26 use 6697. amended by striking out the item relating to section 6697 and inserting in lieu thereof the following: "Sec. 6697. Assessable penalties with respect to liability for tax of qualified investment entities." 26 use 860 (e) EFFECTIVE DATE.—The amendments made by this section shall "o*^- apply with respect to determinations (as defined in section 860(d) of 26 use 860. tne Interneil Revenue Code of 1954) after the date of the enactment of this Act. SEC. 363. REAL ESTATE INVESTMENT TRUST PROVISIONS. (a) LIMITATIONS.— 26 use 856. (1) Section 856(cX2) (relating to limitations) is amended by striking out the word "and" at the end of subparagraph (F), by inserting the word "and" at the end of subparagraph (G), and by adding the following new subparagraph at the end thereof: "(H) gain from the sale or other disposition of a real estate 8isset which is not a prohibited transaction solely by reason 26 use 857. of section 857(b)(6);". 26 use 856. (2) Section 856(cX3) (relating to limitations) is amended by striking out the word "and" at the end of subparagraph (F), by inserting the word "and" at the end of subparagraph (G), and by adding the following new subparagraph at the end thereof: "(H) gain from the sale or other disposition of a real estate asset which is not a prohibited transaction solely by reason of section 857(b)(6);". 26 use 856. (3) Subparagraph (B) of section 856(c)(4) (relating to limita- tions) is amended to read as follows: "(B) property in a transaction which is a prohibited trans- action; and". 26 use 857. Qo,) PROHIBITED TRANSACTIONS.—Paragraph (6) of section 857(b) (relating to income from prohibited transactions) is amended by adding the following subparagraphs at the end thereof: "(C) CERTAIN SALES NOT TO CONSTITUTE PROHIBITED TRANS- ACTIONS.—For purposes of this part, the term 'prohibited transaction' does not include a sale of property which is a real estate asset as defined in section 856(c)(6XB) if— "(i) the trust has held the property for not less than 4 years;
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2853 "(ii) aggregate expenditures made by the trust, or any partner of the trust, during the 4-year period preceding the date of sale which are includible in the basis of the property do not exceed 20 percent of the net selling price of the property; "(iii) during the taxable year the trust does not make more than 5 sales of property (other than foreclosure property); and "(iv) in the case of property, which consists of land or improvements, not acquired through foreclosure (or deed in lieu of foreclosure), or lease termination, the trust has held the property for not less than 4 years for production of rental income. "(D) SPECIAL RULES.—In applying subparagraph (C) the following special rules apply: "(i) The holding period of property acquired through foreclosure (or deed in lieu of foreclosure), or termina- tion of the lease, includes the period for which the trust held the loan which such property secured, or the lease of such property, "(ii) In the case of a property acquired through foreclo- sure (or deed in lieu of foreclosure), or termination of a lease, expenditures made by, or for the account of, the mortgagor or lessee after default became imminent will be regarded as made by the trust. "(iii) Expenditures (including expenditures regarded as made directly by the trust, or indirectly by any partner of the trust, under clause (ii)) will not be taken into account if they relate to foreclosure property and did not cause the property to lose its status as foreclo- sure property. "(iv) Expenditures will not be taken into account if they are made solely to comply with standards or requirements of any government or governmental au- thority having relevant jurisdiction, or if they are made to restore the property as a result of losses arising from fire, storm or other casualty. "(v) The term 'expenditures' does not include ad- vances on a loan made by the trust. "(vi) The sale of more than one property to one buyer as part of one transaction constitutes one sale. "(vii) The term 'sale' does not include any transaction in which the net selling price is less than $10,000. "(E) SALES NOT MEETING REQUIREMENTS.—In determining whether or not any sale constitutes a 'prohibited transac- tion'for purposes of subparagraph (A), the fact that such sale does not meet the requirements of subparagraph (C) of this paragraph shall not be taken into account; and such determi- nation, in the case of a sale not meeting such requirements, shall be made as if subparagraphs (C) and (D) had not been enacted." (c) EXTENSIONS.—Paragraph (3) of section 856(e) (relating to exten- 26 USC 856. sions) is amended to read as follows: "(3) EXTENSIONS.—If the real estate investment trust estab- lishes to the satisfaction of the Secretary that an extension of the grace period is necessary for the orderly liquidation of the trust's interests in such property, the Secretary may grant one or more extensions of the grace period for such property. Any such
92 STAT. 2854 PUBLIC LAW 95-600—NOV. 6, 1978 extension shall not extend the grace period beyond the date which is 6 years after the date such trust acquired such property." 26 use 856 (d) EFFECTIVE DATE.—The amendments made by subsections (a) and note. (b) shall apply to taxable years ending after the date of the enactment of this Act. The amendment made by subsection (c) shall apply to extensions granted after the date of the enactment of this Act with respect to periods beginning after December 31,1977. SEC. 364. CONTRIBUTIONS IN AID OF CONSTRUCTION. 26 use 118. (a) IN GENERAL.—Section 118(b) (relating to contributions in aid of construction) is amended— (1) by striking out "water" in the portion of paragraph (1) preceding subparagraph (A) thereof and inserting in lieu thereof "electric energy, gas (through a local distribution system or transportation by pipeline), water,"; (2) by striking out "water" in paragraph (1)(B) and inserting in lieu thereof "electric energy, gas, steam, water,"; (3) by striking out "water" in paragraph (2)(A)(ii) and by inserting in lieu thereof "electric energy, gas, steam, water,'; (4) by striking out "property" in paragraph (3)(A) and Jt)y inserting in lieu thereof "line" and by striking out "a main water or sewer line" in paragraph (3)(A) and by inserting in lieu thereof "an electric line, a gas main, a steam line, or a main water or sewer line"; and (5) by amending paragraph (3)(C) to read as follows: "(C) REGULATED PUBLIC UTILITY.—The term 'regulated public utility' has the meaning given such term by section 26 use 7701. 7701(a)(33); except that such term shall not include any such utility which is not required to provide electric energy, gas, water, or sewerage disposal services to members of the general public (including in the case of a gas transmission utility, the provision of gas services by sale for resale to the general public) in its service area." 26 use 118 (b) EFFECTIVE DATE.—The amendments made by this section shall note- apply to contributions made after January 31,1976. SEC. 365. LIABILITIES OF CONTROLLED CORPORATIONS. 26 use 357. (a) IN GENERAL.—Subsection (c) of section 357 (relating to assump- tion of liability) is amended by adding at the end thereof the following new paragraph: "(3) CERTAIN LiABiuTiES EXCLUDED.— "(A) I N GENERAL.—If— "(i) the taxpayer's taxable income is computed under the cash receipts and disbursements method of account- ing, and "(ii) such taxpayer transfers, in an exchange to which 26 use 351. section 351 applies, a liability which is either— "(I) an account payable payment of which would give rise to a deduction, or "(II) an amount payable which is described in 26 use 736. section 736(a), then, for purposes of paragraph (1), the amount of such liability shall be excluded in determining the amount of liabilities assumed or to which the property transferred is subject. "(B) EXCEPTION.—Subparagraph (A) shall not apply to any liability to the extent that the incurrence of the liability
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2855 n resulted in the creation of, or an increase in, the basis of any property." (b) BASIS OF DISTRIBUTEES.—Subsection (d) of section 358 (relating to 26 USC 358. basis to distributees) is amended to read as follows: "(d) ASSUMPTION OF LIABILITY.— "(1) IN GENERAL.—Where, as part of the consideration to the taxpayer, another party to the exchange assumed a liability of the taxpayer or acquired from the taxpayer property subject to a liability, such assumption or acquisition (in the amount of the liability) shall, for purposes of this section, be treated as money received by the taxpayer on the exchange. - "(2) EXCEPTION.—Paragraph (1) shall not apply to the amount ' of any liability excluded under section 357(c)(3)." 26 USC 357. (c) EFFECTIVE DATE.—The amendments made by subsections (a) and 26 USC 357 (b) shall apply to transfers occurring on or after the date of the ^°^^- enactment of this Act. SEC. 366. MEDICAL EXPENSE REIMBURSEMENT PLANS. (a) GENERAL RULE.—Section 105 (relating to accident and health 26 USC 105. plans) is amended by adding at the end thereof the following: "(h) AMOUNT PAID TO HIGHLY COMPENSATED INDIVIDUALS UNDER A DISCRIMINATORY SELF-INSURED MEDICAL EXPENSE REIMBURSEMENT PLAN.— "(1) I N GENERAL.—In the case of amounts paid to a highly compensated individual under a self-insured medical reimburse- ment plan which does not satisfy the requirements of paragraph (2) for a plan year, subsection (b) shall not apply to such amounts to the extent they constitute an excess reimbursement of such highly compensated individual. "(2) PROHIBITION OF DISCRIMINATION.—A self-insured medical reimbursement plan satisfies the requirements of this paragraph only if— "(A) the plan does not discriminate in favor of highly compensated individuals as to eligibility to participate; and "(B) the benefits provided under the plan do not discrimi- nate in favor of participants who are highly compensated individuals. "(3) NONDISCRIMINATORY ELIGIBILITY CLASSIFICATIONS.— "(A) I N GENERAL.—A self-insured medical reimbursement plan does not satisfy the requirements of subparagraph (A) of paragraph (2) unless such plan benefits— "(i) 70 percent or more of all employees, or 80 percent or more of all the employees who are eligible to benefit under the plan if 70 percent or more of all employees are eligible to benefit under the plan; or "(ii) such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of highly compensated participants. "(B) EXCLUSION OF CERTAIN EMPLOYEES.—For purposes of subparagraph (A), there may be excluded from considera- tion— "(i) employees who have not completed 3 years of service; "(ii) employees who have not attained age 25; "(iii) part-time or seasonal employees; "(iv) employees not included in the plan who are included in a unit of employees covered by an agreement
92 STAT. 2856 PUBLIC LAW 95-600—NOV. 6, 1978 between employee representatives and one or more employers which the Secretary finds to be a collective bargaining agreement, if accident and health benefits were the subject of good faith bargaining between such employee representatives and such employer or employ- ers; and "(v) employees who are nonresident aliens and who receive no earned income (within the meaning of section 26 use 911. 911(b)) from the employer which constitutes income from sources within the United States (within the mean- 26 use 861. ing of section 861(a)(3)). "(4) NONDISCRIMINATORY BENEFITS.—A self-insured medical reimbursement plan does not meet the requirements of subpara- graph (B) of paragraph (2) unless all benefits provided for participants who are highly compensated individuals are pro- vided for all other participants. "(5) HIGHLY COMPENSATED INDIVIDUAL DEFINED.—For purposes of this subsection, the term 'highly compensated individual' means an individual who is— "(A) one of the 5 highest paid officers, "(B) a shareholder who owns (with the application of 26 use 318. section 318) more than 10 percent in value of the stock of the employer, or "(C) among the highest paid 25 percent of all employees (other than employees described in paragraph (3)(B) who are not participants). "(6) SELF-INSURED MEDICAL REIMBURSEMENT PLAN.—The term 'self-insured medical reimbursement plan' means a plan of an employer to reimburse employees for expenses referred to in subsection (b) for which reimbursement is not provided under a policy of accident and health insurance. "(7) EXCESS REIMBURSEMENT OF HIGHLY COMPENSATED INDIVID- UAL.—For purposes of this section, the excess reimbursement of a highly compensated individual which is attributable to a self- insured medical reimbursement plan is— "(A) in the case of a benefit available to a highly compen- sated individual but not to a broad cross-section of em- ployees, the amount reimbursed under the plan to the employee with respect to such benefit, and "(B) in the case of benefits (other than benefits described in subparagraph (A) paid to a highly compensated individual by a plan which fails to satisfy the requirements of para- graph (2), the total amount reimbursed to the highly com- pensated individual for the plan year multiplied by a fraction— "(i) the numerator of which is the total amount reimbursed to all participants who are highly compen- sated individuals under the plan for the plan year, and "(ii) the denominator of which is the total amount reimbursed to all employees under the plan for such plan year. In determining the fraction under subparagraph (B), there shall not be taken into account any reimbursement which is attributa- ble to a benefit described in subparagraph (A). "(8) CERTAIN CONTROLLED GROUPS.—All employees who are treated as employed by a single employer under subsection (b) or
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2857 (c) of section 414 shall be treated as employed by a single 26 USC 414. employer for purposes of this section. "(9) REGULATIONS.—The Secretary shall prescribe such regula- tions as may be necessary to carry out the provisions of this section. "(10) TIME OF INCLUSION.—Any amount paid for a plan year that is included in income by reason of this subsection shall be treated as received or accrued in the taxable year of the partici- pant in which the plan year ends." (b) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 105 apply to taxable years beginning after December 31,1979. "°*^- SEC. 367. THREE-YEAR EXTENSION OF PROVISION FOR 60-MONTH DE- PRECIATION OF EXPENDITURES TO REHABILITATE LOW- INCOME RENTAL HOUSING. Subsection (k) of section 167 (relating to depreciation of expendi- 26 USC 167. tures to rehabilitate low-income rental housing) is amended by striking out "January 1,1979" each place it appears and inserting in lieu thereof "January 1,1982". SEC. 368. DELAY IN APPLICATION OF NEW NET OPERATING LOSS RULES. (a) IN GENERAL.—Except as provided in subsection (b), paragraphs (2) and (3) of section 806(g) of the Tax Reform Act of 1976 (relating to 26 USC 382 effective dates for the amendments to sections 382 and 383 of the "o*^- Code) are amended by striking out "1978" each place it appears and ooo^^^ ^^^' inserting in lieu thereof "1980". '*"'^- (b) ELECTION OF PRIOR LAW.— (1) A taxpayer may elect not to have the amendment made by subsection (a) apply with respect to any acquisition or reorganiza- tion occurring before the end of the taxpayer's first taxable year beginning after June 30, 1978, where such acquisition or reorga- nization occurs pursuant to a written binding contract or option to acquire stock or assets which was entered into before Septem- ber 27,1978. (2) An election under this subsection shall be filed with a taxpayer's timely filed return for the first taxable year in which a reorganization or acquisition described in paragraph (1) occurs, or, if later, within 90 days after the date of enactment of this Act. Such election shall apply to all acquisitions and reorganizations to which, but for such election, subsection (a) would apply. SEC. 369. USE OF CERTAIN EXPIRED NET OPERATING LOSS CARRY- OVERS. (a) IN GENERAL.—Clause (iv) of section 374(e)(1)(A) (relating to use 26 USC 374. of expired net operating loss carryovers to offset income arising from certain railroad reorganization proceedings) is amended to read as follows: "(iv) a redemption of a certificate of value of the United States Railway Association issued under section 306 of such Act to such corporation (or issued to another 26 USC 306. member of the same affiliated group (within the mean- ing of section 1504) as such corporation for their taxable 26 USC 1504. years which included March 31,1967),". (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 374 apply to taxable years ending after March 31,1976. note. 39-194 O - 8 0 - p t . 3 15 : QU
92 STAT. 2858 PUBLIC LAW 95-600—NOV. 6, 1978 SEC. 370. INCOME FROM CERTAIN RAILROAD ROLLING STOCK TREATED AS INCOME FROM SOURCES WITHIN THE UNITED STATES. 26 use 861. (a) GENERAL RULE.—Section 861 (relating to income from sources within the United States) is amended by adding at the end thereof the following new subsection: "(f) INCOME FROM CERTAIN RAILROAD ROLLING STOCK TREATED AS INCOME FROM SOURCES WITHIN THE UNITED STATES. "(1) GENERAL RULE.—For purposes of subsection (a) and section 26 use 826. 826(a), if— "(A) a taxpayer leases railroad rolling stock which is 26 use 38. section 38 property (or would be section 38 property but for 26 use 48. section 48(a)(5)) to a domestic common carrier by railroad or a corporation which is controlled, directly or indirectly, by one or more such common carriers, and "(B) the use under such lease is expected to be use within the United States, all amounts includible in gross income by the taxpayer with respect to such railroad rolling stock (including gain from sale or other disposition of such railroad rolling stock) shall be treated as income from sources within the United States. The requirements of subparagraph (B) of the preceding sentence shall be treated as satisfied if the only expected use outside the United States is use by a person (whether or not a United States person) in Canada or Mexico on a temporary basis which is not expected to exceed a total of 90 days in any taxable year. "(2) PARAGRAPH (i) NOT TO APPLY WHERE LESSOR IS A MEMBER OF CONTROLLED GROUP WHICH INCLUDES A RAILROAD.—Paragraph (1) shall not apply to a lease between two members of the same 26 use 1563. controlled group of corporations (as defined in section 1563) if any member of such group is a domestic common carrier by railroad or a switching or terminal company referred to in 26 use 184. subparagraph (B) of section 184(d)(1). "(3) DENIAL OF FOREIGN TAX CREDIT.—No credit shall be al- 26 use 901. lowed under section 901 for any payments to foreign countries with respect to any amount received by the taxpayer with respect to railroad rolling stock which is subject to paragraph (1).". 26 use 861 (b) EFFECTIVE DATES.— "*'*^- (1) IN GENERAL.—The amendment made by subsection (a) shall apply to all railroad rolling stock placed in service with respect to the taxpayer after the date of the enactment of this Act. Supra. (2) ELECTION TO EXTEND SECTION 861(f) TO RAILROAD ROLLING STOCK PLACED IN SERVICE BEFORE DATE OF ENACTMENT. (A) I N GENERAL.—At the election of the taxpayer, the amendment made by subsection (a) shall also apply, for taxable years beginning after the date of the enactment of this Act, to all railroad rolling stock placed in service with respect to the taxpayer on or before such date of enactment. Such an election may not be revoked except with the consent of the Secretary of the Treasury or his delegate. (B) MANNER AND TIME OF ELECTION AND REVOCATION.—An election under subparagraph (A), and any revocation of such an election, shall be made in such manner and at such time as the Secretary of the Treasury or his delegate may by regulations prescribe.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2859 SEC. 371. NET OPERATING LOSSES ATTRIBUTABLE TO PRODUCT LIABIL- ITY LOSSES. (a) 10-YEAR CARRYBACK.— (1) I N GENERAL.—Paragraph (1) of section 172(b) (relating to 26 USC 172. years to which loss may be carried) is amended by adding at the end thereof the following new subparagraph: "(H) PRODUCT LIABILITY LOSSES.—In the case of a taxpayer which has a product liability loss (as defined in subsection (i)) for a taxable year beginning after September 30, 1979 (referred to in this subparagraph as the 'loss year'), the product liability loss shall be a net operating loss carryback to each of the 10 taxable years preceding the loss year." (2) CONFORMING AMENDMENT.—Clause (i) of section 172(b)(1)(A) is amended by striking out "and (G)" and inserting in lieu thereof "(G), and (H)". (b) RULES RELATING TO PRODUCT LIABILITY LOSSES.—Section 172 is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection: "(i) RULES RELATING TO PRODUCT LIABIUTY LOSSES.—For purposes of subsection (b)— "(1) PRODUCT UABIUTY LOSS.—The term 'product liability loss' means, for any taxable year, the lesser of— "(A) the net operating loss for such year reduced by any portion thereof which is attributable to a foreign expropri- ation loss, or "(B) the sum of the amounts allowable as deductions under sections 162 and 165 which are attributable to— 26 USC 162, "(i) product liability, or 165. "(ii) expenses incurred in the investigation or settle- i' ment of, or opposition to, claims against the taxpayer on t account of product liability. "(2) PRODUCT UABILITY.—The term 'product liability' means— "(A) liability of the taxpayer for damages on account of physical injury or emotional harm to individuals, or damage to or loss of the use of property, on account of any defect in any product which is manufactured, leased, or sold by the taxpayer, but only if "(B) such injury, harm, or damage arises after the tax- payer has completed or terminated operations with respect to, and has relinquished possession of, such product. "(3) ELECTION.—Any taxpayer entitled to a 10-year carryback ,. under subsection Ot))(l)(H) from any loss year may elect to have the carryback period with respect to such loss year determined without regard to subsection (b)(1)(H). Such election shall be made in such manner as may be prescribed by the Secretary and shall be made by the due date (including extensions of time) for filing the taxpayer's return for the taxable year of the net operating loss. Such election, once made for any taxable year, shall be irrevocable for that taxable year." (c) APPLICATION OF ACCUMULATED EARNINGS TAX TO PRODUCT LIABILITY LOSS RESERVES.—Subsection (h) of section 537 (relating to 26 USC 537. special rules) is amended by redesignating paragraph (4) as para- graph (5) and by inserting after paragraph (3) the following new paragraph: "(4) PRODUCT LIABIIJTY LOSS RESERVES.—The accumulation of reasonable amounts for the payment of reasonably anticipated product liability losses (as defined in section 172(i)), as deter- Supra.
92 STAT. 2860 PUBLIC LAW 95-600—NOV. 6, 1978 mined under regulations prescribed by the Secretary, shall be treated as accumulated for the reasonably anticipated needs of the business." 26 use 172 (d) EFFECTIVE DATE.—The amendments made by this section shall note. apply with respect to taxable years beginning after September 30, 1979. SEC. 372. EXCLUSION FROM GROSS INCOME WITH RESPECT TO MAGA- ZINES, PAPERBACKS, AND RECORDS RETURNED AFTER THE CLOSE OF THE TAXABLE YEAR. (a) IN GENERAL.—Subpart B of part II of subchapter E of chapter 1 (relating to taxable year for which items of gross income included) is amended by adding at the end thereof the following new section: 26 use 458. "SEC. 458. MAGAZINES, PAPERBACKS, AND RECORDS RETURNED AFTER THE CLOSE OF THE TAXABLE YEAR. "(a) EXCLUSION FROM GROSS INCOME.—A taxpayer who is on an accrual method of accounting may elect not to include in the gross income for the taxable year the income attributable to the qualified sale of any magazine, paperback, or record which is returned to the taxpayer before the close of the merchandise return period. "(b) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) MAGAZINE.—The term 'magazine' includes any other periodical. "(2) PAPERBACK.—The term 'paperback' means any book which has a flexible outer cover and the pages of which are affixed directly to such outer cover. Such term does not include a magazine. "(3) RECORD.—The term 'record' means a disc, tape, or similar object on which musical, spoken, or other sounds are recorded. "(4) SEPARATE APPUCATION WITH RESPECT TO MAGAZINES, PAPER- BACKS, AND RECORDS.—If a taxpayer makes qualified sales of more than one category of merchandise in connection with the same trade or business, this section shall be applied as if the qualified sales of each such category were made in connection with a separate trade or business. For purposes of the preceding sentence, magazines, paperbacks, and records shall each be treated as a separate category of merchandise. "(5) QuAUFiED SALE.—A Sale of a magazine, paperback, or record is a qualified sale if^ "(A) at the time of sale, the taxpayer has a legal obligation to adjust the sales price of such magazine, paperback, or record if it is not resold, and "(B) the sales price of such magazine, paperback, or record is adjusted by the taxpayer because of a failure to resell it. "(6) AMOUNT EXCLUDED.—The amount excluded under this section with respect to any qualified sale shall be the lesser of— "(A) the amount covered by the legal obligation described in paragraph (5XA), or "(B) the amount of the adjustment agreed to by the taxpayer before the close of the merchandise return period. "(7) MERCHANDISE RETURN PERIOD.— "(A) Except as provided in subparagraph (B), the term 'merchandise return period' means, with respect to any taxable year—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2861 "(i) in the case of magazines, the period of 2 months and 15 days first occurring after the close of taxable year, or "(ii) in the case of paperbacks and records, the period of 4 months and 15 days first occurring after the close of the taxable year. "(B) The taxpayer may select a shorter period than the applicable period set forth in subparagraph (A). "(C) Any change in the merchandise return period shall be treated as a change in the method of accounting. "(8) CERTAIN EVIDENCE MAY BE SUBSTITUTED FOR PHYSICAL RETURN OF MERCHANDISE.—Under regulations prescribed by the Secretary, the taxpayer may substitute, for the physical return of magazines, paperbacks, or records required by subsection (a), certification or other evidence that the magazine, paperback, or record has not been resold and will not be resold if such evidence— "(A) is in the possession of the taxpayer at the close of the merchandise return period, and "(B) is satisfactory to the Secretary. "(9) REPURCHASED BY THE TAXPAYER NOT TREATED AS RESALE.— A repurchase by the taxpayer shall be treated as an adjustment of the sales price rather than as a resale. "(c) QUALIFIED SALES TO WHICH SECTION APPLIES.— "(1) ELECTION OF BENEFITS.—This section shall apply to quali- fied sales of magazines, paperbacks, or records, as the case may be, if and only if the taxpayer makes an election under this section with respect to the trade or business in connection with which such sales are made. An election under this section may be made without the consent of the Secretary. The election shall be made in such manner as the Secretary may by regulations prescribed and shall be made for any taxable year not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). "(2) SCOPE OP ELECTION.—An election made under this section shall apply to all qualified sales of magazines, paperbacks, or records, as the case may be, made in connection with the trade or business with respect to which the taxpayer has made the election. "(3) PERIOD TO WHICH ELECTION APPLIES.—An election under this section shall be effective for the taxable year for which it is made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to the revocation of such election. "(4) TREATMENT AS METHOD OF ACCOUNTING.—Except to the extent inconsistent with the provisions of this section, for pur- poses of this subtitle, the computation of taxable income under an election made under this section shall be treated as a method of accounting. "(d) 5-YEAR SPREAD OP TRANSITIONAL ADJUSTMENTS FOR MAGA- ZINES.—In applying section 481(c) with respect to any election under 26 use 481. this section which applies to magazines, the period for taking into account any decrease in taxable income resulting from the applica- tion of section 481(a)(2) shall be the taxable year for which the election is made and the 4 succeeding taxable years. "(e) SUSPENSE ACCOUNT FOR PAPERBACKS AND RECORDS.—
92 STAT. 2862 PUBLIC LAW 95-600—NOV. 6, 1978 "(1) IN GENERAL.—In the case of any election under this section which applies to paperbacks or records, in lieu of applying 26 use 481. section 481, the taxpayer shall establish a suspense account for the trade or business for the taxable year for which the election is made. "(2) INITIAL OPENING BALANCE.—The opening balance of the account described in paragraph (1) for the first taxable year to which the election applies shall be the largest dollar amount of returned merchandise which would have been taken into ac- count under this section for any of the 3 immediately preceding taxable years if this section had applied to such preceding 3 taxable years. This paragraph and paragraph (3) shall be applied by taking into account only amounts attributable to the trade or business for which such account is established. "(3) ADJUSTMENTS IN SUSPENSE ACCOUNT.—At the close of each taxable year the suspense account shall be— "(A) reduced the excess (if any) of— "(i) the opening balance of the suspense account for the taxable year, over "(ii) the amount excluded from gross income for the ' taxable year under subsection (a), or "(B) increased (but not in excess of the initial opening balance) by the excess (if any) of— "(i) the amount excluded from gross income for the taxable year under subsection (a), over "(ii) the opening balance of the account for the taxable year. "(4) GROSS INCOME ADJUSTMENTS.— "(A) REDUCTIONS EXCLUDED FROM GROSS INCOME.—In the case of any reduction under paragraph (3)(A) in the account for the taxable year, an amount equal to such reduction shall .^ be excluded from gross income for such taxable year. "(B) INCREASES ADDED TO GROSS INCOME.—In the case of any increase under paragraph (3)(B) in the account for the taxable year, an amount equal to such increase shall be included in gross income for such taxable year. If the initial opening balance exceeds the dollar amount of returned merchandise which would have been taken into ac- count under subsection (a) for the taxable year preceding the first taxable year for which the election is effective if this section had applied to such preceding taxable year, then an amount equal to the amount of such excess shall be included in gross income for such first taxable year. "(5) SUBCHAPTER C TRANSACTIONS.—The application of this subsection with respect to a taxpayer which is a party to any transaction with respect to which there is nonrecognition of gain or loss to any party to the transaction by reason of subchapter C shall be determined under regulations prescribed by the Secretary." (b) CLERICAL AMENDMENTS.—The table of sections for such subpart B is amended by adding at the end thereof the following: "Sec. 458. Magazines, paperbacks, and records returned after the close of the taxable year." 26 use 458 (c) EFFECTIVE DATE.—The amendments made by this section shall °°*®- apply to taxable years beginning after September 30,1979.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2863 SEC. 373. QUALIFIED DISCOUNT COUPONS REDEEMED AFTER CLOSE OF TAXABLE YEAR. (a) GENERAL RULE.—Subpart C of part II of subchapter E of chapter 1 of the Internal Revenue Code of 1954 (relating to taxable year for which deductions taken) is amended by adding at the end thereof the following new section: "SEC. 466. QUALIFIED DISCOUNT COUPONS REDEEMED AFTER CLOSE OF 26 USC 466. TAXABLE YEAR. "(a) ALLOWANCE OF DEDUCTION.—At the election of a taxpayer whose taxable income is computed under an accrual method of accounting, the deduction allowable under this chapter for the redemption costs of qualified discount coupons shall be an amount , equal to the sum of— "(1) such costs incurred by the taxpayer with respect to coupons— "(A) which were outstanding at the close of the taxable year, and "(B) which were received by the taxpayer before the close of the redemption period for the taxable year, plus "(2) such costs (other than costs properly t£iken into account under paragraph (1) for a prior taxable year) incurred by the taxpayer during the taxable year. "(b) QUALIFIED DISCOUNT COUPONS.—For purposes of this section— "(1) IN GENERAL.—The term 'qualified discount coupon' means a discount coupon which— "(A) was issued by the taxpayer, "(B) is redeemable by the taxpayer, and "(C) allows a discount on the purchase price of merchan- dise or other tangible personal property. "(2) METHOD OF ISSUANCE NOT TAKEN INTO ACCOUNT.—The determination of whether or not a discount coupon is a qualified discount coupon sh£dl be made without regard to whether the coupon was issued through a newspaper, magazine, or other publication, by mail, on the pack or in the pack of merchandise, or otherwise. "(3) DISCOUNT ON ITEM CANNOT EXCEED $5.—A coupon shall not be a qualified discount coupon if— "(A) the face amount of such coupon is more than $5, or "(B) such coupon may be used with other coupons to bring about a price discount of more than $5 with respect to any item. "(4) THERE MUST BE REDEMPTION CHAIN.—A coupon shall not be a qualified discount coupon if the issuer directly redeems such coupon from the person using the coupon to receive a price discount. For purposes of the preceding sentence, corporations which are members of the same controlled group of corporations (within the meaning of section 1563(a) as the issuer shall be 26 USC 1563. treated as the issuer. "(5) REDEEMABLE BY TAXPAYER.—A coupon is redeemable by the taxpayer if the terms of the coupon require the taxpayer to redeem the coupon when presented for redemption in accordance with its terms. "(c) REDEMPTION COSTS; REDEMPTION PERIOD.—For purposes of this section— "(1) REDEMPTION COSTS.—The term 'redemption cost' means, with respect to any coupon—
92 STAT. 2864 PUBLIC LAW 95-600—NOV. 6, 1978 » «(A) ^jjg lesser of— "(i) the amount of the discount provided by the terms of the coupon, or "(ii) the amount incurred by the taxpayer for paying such discount, plus "(B) the amount incurred by the taxpayer for a payment to , , the retailer (or other person redeeming the coupon from the person receiving the price discount), but only if the amount so payable is stated on the coupon. "(2) REDEMPTION PERIOD.— "(A) IN GENERAL.—Except as provided in subparagraph (B), the redemption period for any taxable year is the 6- month period immediately following the close of the taxable year. "(B) TAXPAYER MAY SELECT SHORTER PERIOD.—The tax- payer may select a redemption period which is shorter than 6 months. "(C) CHANGE IN REDEMPTION PERIOD.—Any change in the redemption period shall be treated as a change in the method of accounting. "(d) QUALIFIED DISCOUNT COUPONS TO WHICH SECTION APPLIES.— "(1) ELECTION OF BENEFITS.—This section shall apply to quali- fied discount coupons if and only if the taxpayer makes an election under this section with respect to the trade or business in connection with which such coupons are issued. An election under this section may be made without the consent of the Secretary. The election shall be made in such manner as the Secretary may by regulations prescribe and shall be made for any taxable year not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). "(2) SCOPE OF ELECTION.—An election made under this section shall apply to all qualified discount coupons issued in connection with the trade or business with respect to which the taxpayer has made the election. "(3) PERIOD TO WHICH ELECTION APPLIES.—An election under this section shall apply to the taxable year for which it is made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to the revocation of such election. "(4) TREATMENT AS METHOD OF ACCOUNTING.—Except to the extent inconsistent with the provisions of this section, for pur- poses of this subtitle, the computation of taxable income under an election made under this section shall be treated as a method of accounting. "(e) SUSPENSE ACCOUNT.— "(1) IN GENERAL.—In the case of any election under this section which (but for this subsection) would result in a net decrease in 26 use 481. taxable income under section 481(a)(2), in lieu of applying section 481, the taxpayer shall establish a suspense account for the trade or business for the taxable year for which the election is made. "(2) INITIAL OPENING BALANCE.—The initial opening balance of the account described in paragraph (1) for the first taxable year to which the election applies shall be the amount by which— "(A) the largest dollar amount which would have been taken into account under subsection (a)(1) for any of the 3 immediately preceding taxable years if this section had applied to such 3 preceding taxable years, exceeds
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2865 "(B) the sum of the increases in income (and the decreases in deductions) which (but for this subsection) would result under section 481(a)(2) for such first taxable years. 26 use 481. This subsection shall be applied by taking into account only amounts attributal to the trade or business for which such account is established. "(3) ADJUSTMENTS IN SUSPENSE ACCOUNT.—At the close of each taxable year, the suspense account shedl be— "(A) reduced by the excess (if any) of— "(i) the opening balance of the suspense account for the taxable year, over "(ii) the amount deducted for the taxable year under subsection (a)(1), or "(B) increased (but not in excess of the initial opening bsdance) by the excess (if any) of— "(i) the amount deducted for the taxable year under subsection (a)(1), over "(ii) the opening balance of the suspense account for the taxable year. "(4) INCOME ADJUSTMENTS.— "(A) REDUCTIONS ALLOWED AS DEDUCTION.—In the case of any reduction under paragraph (3)(A) in the account for the taxable year, an amount equal to such reduction shall be allowed as a deduction for such taxable year. "(B) INCREASES ADDED TO GROSS INCOME.—In the case of any increase under paragraph (3)(B) in the account for the taxable year, an amount equal to such increase shall be included in gross income for such taxable year. If the amount described in paragraph (2)(A) exceeds the dollar amount which would have been taken into account under subsec- tion (a)(1) for the taxable year preceding the first taxable year for which the election is effective if this section had applied to such preceding taxable year, then an amount equal to the amount of such excess shall be included in gross income for such first taxable year. "(5) SUBCHAPTER C TRANSACTIONS.—The application of this subsection with respect to a taxpayer which is a party to any transaction with respect to which there is nonrecognition of gain or loss to any party to the transaction by reason of subchapter C shall be determined under regulations prescribed by the Secretary. "(f) 10-YEAR SPREAD OF ANY NET INCREASE IN TAXABLE INCOME UNDER SECTION 481(a)(2).—In the case of any election under this section which results in a net increase in taxable income under section 481(a)(2), under regulations prescribed by the Secretary, such net increase shall (except as otherwise provided in such regulations) be taken into account by the tsixpayer in computing taxable income in each of the 10 taxable years beginning with the year for which the election is made." (b) CLERICAL AMENDMENT.—The table of sections for such subpart C is amended by adding at the end thereof the following new item: "Sec. 466. Qualified discount coupons redeemed after close of taxable year." (C) EFFECTIVE D A T E . — 26 u s e 466 (1) IN GENERAL.—The amendments made by subsections (a) and "ote. (b) shall apply to taxable years ending after December 31, 1978. (2) APPUCATION TO CERTAIN PRIOR TAXABLE YEARS.— (A) I N GENERAL.—If—
92 STAT. 2866 PUBLIC LAW 95-600—NOV. 6, 1978 (i) the taxpayer makes an election under section 466 of Ante, p. 2863. the Internal Revenue Code of 1954 for his first taxable year ending after December 31,1978, and (ii) for a continuous period of 1 or more taxable years each of which ends on or before December 31,1978, the taxpayer used the method of accounting with respect to «'r \ any type of discount coupons which was reasonably similar to the method of accounting provided by section 26 CFR 1.451-4. 1.451-4 of the Income Tax Regulations, then the taxpayer may make an election under this para- graph to have the method of accounting which he used for 1 such continuous period treated as a valid method of account- ing with respect to each such type of discount coupons for such period for purposes of the Internal Revenue Code of 26 use 1. 1954. A taxpayer may make an election under this para- graph with respect to only one such continuous period. (B) CERTAIN AMOUNTS TO WHICH METHOD OF ACCOUNTING APPLIES.—An accounting method which the taxpayer used for the period described in subparagraph (A) may include— (i) costs of the type permitted by section 1.451-4 of the Income Tax Regulations to be included in the estimated average cost of redeeming coupons, plus (ii) any amount designated or referred to on the coupon payable by the taxpayer to the person who allowed the discount on a sale by such person to the user of the coupon. (C) SUSPENSE ACCOUNT NOT REQUIRED IN CERTAIN CASES.—A taxpayer whose election under this paragraph applies to all types of discount coupons which he issued during the con- tinuous period referred to in subparagraph (A)(ii) shall not be required to establish a suspense account under section 466(e) of the Internal Revenue Code of 1954. (D) RULES RELATING TO ELECTION UNDER THIS SUBSECTION.— An election under this paragraph may be made only before the expiration of the period for making an election under section 466 of the Internal Revenue Code of 1954 for the taxpayer's first taxable year ending after December 31,1978. An election under this paragraph shall be made in such a manner and form as the Secretary of the Treasury or his delegate may by regulations prescribe. For purposes of the 26 use 1. Internal Revenue Code of 1954, such an election shall be ' treated as a method of accounting, except that the approval of the Secretary of the Treasury or his delegate to the making of the election may not be required. TITLE IV—CAPITAL GAINS; MINIMUM TAX; MAXIMUM TAX Subtitle A—Capital Gains SEC. 401. REPEAL OF ALTERNATIVE TAX ON CAPITAL GAINS OF INDIVID- UALS. 26 use 1201. (a) GENERAL RULE.—Section 1201 (relating to alternative tax) is amended— (1) by striking out subsections (b) and (c), ._.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2867 (2) by redesignating subsection (d) as subsection (b), and (3) by amending the section heading to read as follows: "SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.". (b) CONFORMING AMENDMENTS.— (1) Paragraph (1) of section 3(b) is amended by striking out 26 USC 3. subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively. (2) Subsection (a) of section 5 is amended by striking out 26 USC 5. paragraph (3) and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4), respectively. (3) Paragraph (1) of section 871(b) is amended by striking out 26 USC 871. "section 1, 402(e)(1), or 1201(b)" and inserting in lieu thereof "section l o r 402(e)(1)". (4) Paragraph (1) of section 911(d) is amended— 26 USC 911. (A) by striking out "section 1 or section 1201" each place it appears and inserting in lieu thereof "section 1", and (B) by striking out "(whichever is applicable)" each place it appears. (5) Subsection (b) of section 1304 is amended— 26 USC 1304. (A) by adding "and" at the end of paragraph (2), (B) by striking out paragraph (3), and (C) by redesignating paragraph (4) as paragraph (3). (6) The table of sections for part I of subchapter P of chapter 1 is amended by striking out the item relating to section 1201 and inserting in lieu thereof the following: "Sec. 1201. Alternative tax for corporations." (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 1201 apply to taxable years beginning after December 31,1978. note. SEC. 402. INCREASED CAPITAL GAINS DEDUCTION FOR INDIVIDUALS. (a) GENERAL RULE.—Section 1202 (relating to deduction for capital 26 USC 1202. gains) is amended to read as follows: "SEC. 1202. DEDUCTION FOR CAPITAL GAINS. "(a) IN GENERAL.—If for any taxable year a taxpayer other than a corporation has a net capital gain, 60 percent of the amount of the net capital gain shall be a deduction from gross income. "(b) ESTATES AND TRUSTS.—In the case of an estate or trust, the deduction shall be computed by excluding the portion (if any) of the gains for the taxable year from sales or exchanges of capital assets which, under sections 652 and 662 (relating to inclusions of amounts 26 USC 652, in gross income of beneficiaries of trusts), is includible by the income 662. beneficiaries as gain derived from the sale or exchange of capital assets. "(c) TAXABLE YEARS WHICH INCLUDE NOVEMBER 1,1978.—If for any taxable year beginning before November 1, 1978, and ending after October 31, 1978, a taxpayer other than a corporation has a net capital gain, the deduction under subsection (a) shall be the sum of— "(1) 60 percent of the lesser of— "(A) the net capital gain for the taxable year, or "(B) the net capital gain taking into account only sales and exchanges after October 31,1978, plus "(2) 50 percent of the excess of— "(A) the net capital gain for the taxable year, over "(B) the amount of net capital gain taken into account under paragraph (1)." (b) TECHNICAL AMENDMENTS.—
92 STAT. 2868 PUBLIC LAW 95-600—NOV. 6, 1978 26 use 57. (1) Subparagraph (A) of section 57(a)(9) (relating to treatment of capital gains for purposes of the minimum tax) is amended to read as follows: "(A) INDIVIDUALS.—In the case of a taxpayer other than a corporation, an amount equal to the net capital gain deduc- Ante, p. 2867. tion for the t£ixable year determined under section 1202." 26 use 170. (2) Subparagraph (B) of section 170(e)(1) (relating to charitable deduction for contributions of capital gain property) is amended by striking out "50 percent" and inserting in lieu thereof "40 percent", (c) EFPECTIVE DATES;-^ 26 use 1202 (1) The amendments made by subsections (a) and (b)(1) shall note. apply to taxable years ending after October 31,1978. 26 use 170 (2) The amendment made by subsection (b)(2) shall apply to note. contributions made after October 31,1978. SEC. 403. REDUCTION OF ALTERNATIVE CAPITAL GAINS TAX FOR COR- PORATIONS. 26 use 1201. (a) GENERAL RULE.—Paragraph (2) of section 1201(a) (relating to alternative tax for corporations) is amended bv striking out "30 percent" and inserting in lieu thereof "28 percent'. (b) TRANSITIONAL RULE.—Section 1201 is amended by adding at the end thereof the following new subsection: "(c) TAXABLE YEARS WHICH INCLUDE JANUARY 1,1979.—If for any taxable year beginning before January 1, 1979, and ending after December 31, 1978, a corporation has a net capital gain, then subsection (a) shall be applied by substituting for the language of paragraph (2) the following: "(2)(A) a tax of 28 percent of the lesser of— ' '(i) the net capital gain for the taxable year, or . "(ii) the net capital gain taking into account only sales and exchanges after December 31,1978, plus "(B) a tax of 30 percent of the excess of— "(i) the net capital gains for the taxable year, over "(ii) the amount of net capital gain taken into account under subparagraph (A)." (c) CONFORMING AMENDMENTS.— 26 use 170. (1) Subparagraph (B) of section 170(e)(1) (relating to charitable deduction for contributions of capital gain property) is amended by striking out "62y2 percent" and inserting in lieu thereof "2%6". 26 use 528. (2) Subparagraph (B) of section 528(b)(2) (relating to tax im- posed on certain homeowners associations) is amended to read as follows: Supra. "(B) an amount determined as provided in section 1201(a) on such gain." 26 use 857. (3) Clause (ii) of section 857(b)(3)(A) (relating to tax on real estate investment trusts) is amended by striking out "a tax of 30 percent of" and inserting in lieu thereof "a tax determined at the rate provided in section 1201(a) on". 26 use 904. (4) Subsection (b) of section 904 (relating to taxable income for computing the limitation on foreign tax credits) is amended— (A) by striking out "three-eighths" wherever it appears and inserting in lieu thereof "the rate differential portion"; .>. and (B) by striking the period at the end of subparagraph (D) of paragraph (3), inserting in lieu thereof a comma, and insert-
PUBLIC LAW 9 5 - 6 0 0 — N O V . 6, 1978 9 2 STAT. 28()9 ing immediately thereafter t h e following new paragraph to read as follows: "(E) R A T E DIFFERENTIAL PORTION.—The ' r a t e differential portion' of foreign source n e t capital gain, n e t capital gain, or t h e excess of n e t capital gain from sources within t h e United States over net capital gain, as the case may be, is t h e same proportion of such a m o u n t a s t h e excess of t h e highest rate of tax specified in section 11(b) over the alternative r a t e 26 u s e 11. of tax under section 1201(a) bears to t h e highest rate of tax Ante, p. 2868 specified in section 11(b)." (d) EFFECTIVE DATES.— (1) The amendments made by subsections (a) and (b) shall apply 26 u s e 1201 to taxable years ending after December 31,1978. note. (2) T h e a m e n d m e n t made by p a r a g r a p h (1) of subsection (c) 26 u s e 170 shall apply to gifts made after December 31,1978. note. (3) T h e amendments made by paragraphs (2), (3), a n d (4) of 26 u s e 528 subsection (c) shall t a k e effect on t h e date of t h e enactment of note. this Act. SEC. 404. ONE-TIME EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE BY INDIVIDUAL WHO HAS ATTAINED AGE 55. (a) GENERAL R U L E . — T h e section heading a n d subsections (a) a n d (b) section 121 a r e amended to read as follows: 26 USe 121. "SEC. 12L ONE-TIME EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE BY INDIVIDUAL WHO HAS ATTAINED AGE 55. "(a) GENERAL RULE.—At t h e election of t h e taxpayer, gross income does not include gain from t h e sale or exchange of property if— "(1) t h e taxpayer has attained t h e age of 55 before t h e date of such sale or exchange, a n d "(2) during t h e 5-year period ending on t h e date of t h e sale or exchange, such property h a s been owned a n d used by t h e taxpayer as his principal residence for periods aggregating 3 years or more. "(b) LIMITATIONS.— "(1) DOLLAR LIMITATION.—The a m o u n t of t h e gain excluded from gross income under subsection (a) shall not exceed $100,000 ($50,000 in t h e case of a separate r e t u r n by a married individual). "(2) APPLICATION TO ONLY i SALE OR EXCHANGE.—Subsection (a) shall not apply to a n y sale or exchange by t h e taxpayer if a n election by t h e taxpayer or his spouse under subsection (a) with respect to a n y other sale or exchange is in effect. "(3) ADDITIONAL ELECTION I F PRIOR SALE WAS MADE ON OR BEFORE JULY 26, 1978.—In t h e case of any sale or exchange after J u l y 26, 1978, this section shall be applied by not taking into account any election made with respect to a sale or exchange on or before such date." Ot)) TACKING OF HOLDING PERIOD I N CASE OF INVOLUNTARY CONVER- SIONS.—Subsection (d) of section 121 (relating to special rules) is amended by adding a t t h e end thereof t h e following new paragraph: "(8) PROPERTY ACQUIRED AFTER INVOLUNTARY CONVERSION.—If t h e basis of t h e property sold or exchanged is determined (in whole or in part) under subsection (b) of section 1033 (relating to 26 USC 1033. basis of property acquired through involuntary conversion), t h e n t h e holding a n d use by t h e taxpayer of t h e converted property shall be treated as holding a n d use by t h e taxpayer of t h e property sold or exchanged.' (c) TECHNICAL AND CONFORMING A M E N D M E N T S . —
92 STAT. 2870 PUBLIC LAW 95-600—NOV. 6, 1978 26 use 121. (1) Paragraph (2) of section 121(d) is amended by striking out "8-year period" and inserting in lieu thereof "5-year period". (2) Paragraph (5) of section 121(d) is amended— (A) by striking out "8-year period" and inserting in lieu thereof "5-year period", and (B) by striking out "5 years" and inserting in lieu thereof "3 years". (3) The table of sections for part III of subchapter B of chapter 1 is amended by striking out the item relating to section 121 and inserting in lieu thereof the following: ,,v I ,, "Sec. 121. One-time exclusion of gain from sale of principal residence by in- dividual who has attained age 55." 26 use 1033. (4) Paragraph (3) of section 1033(g) (relating to cross references) is amended to read as follows: "(3) For one-time exclusion from gross income of gain from involun- tary conversion of principal residence by individual who has attained age 55, see section 121." 26 use 1034. (5) Subsection (k) of section 1034 (relating to cross references) is amended to read as follows: "(k) CROSS REFERENCE.— "For one-time exclusion from gross income of gain from sale of princi- pal residence by individual who has attained age 55, see section 121." 26 use 1038. (6) Section 1038(e)(1)(A) is amended by striking out "relating to gain from sale or exchange of residence of an individual who has attained age 65" and inserting in lieu thereof "relating to one- time exclusion of gain from sale of principal residence by individual who has attained age 55". 26 use 1250. (7) Section 1250(d)(7)(B) is amended by striking out "relating to gains from sale or exchange of residence of individual who has attained the age of 65" and inserting in lieu thereof "relating to one-time exclusion of gain from sale of principal residence by individual who has attained age 55". 26 use 6012. (8) Section 6012(c) is amended by striking out "relating to sale of residence by individual who has attained age 65" and inserting in lieu thereof "relating to one-time exclusion of gain from sale of principal residence by individual who has attained age 55". 26 use 121 (d) EFFECTIVE DATE.— "°*^- (1) IN GENERAL.—The amendments made by this section shall apply to sales or exchanges after July 26, 1978, in taxable years ending after such date. (2) TRANSITIONAL RULE,—In the case of a sale or exchange of a residence before July 26,1981, a taxpayer who has attained age 65 on the date of such sale or exchange may elect to have section 121 of the Internal Revenue Code of 1954 applied by substituting "8-year period" for "5-year period" and "5 years" for "3 years" in subsections (a), (d)(2), and (d)(5) of such section. SEC. 405. WAIVER OF CERTAIN 18-MONTH RULES OF SECTION 1034 WHEN SALE OF RESIDENCE IS CONNECTED WITH COMMENCING WORK AT NEW PLACE. 26 use 1034. (a) IN GENERAL.—Subsection (d) of section 1034 (relating to sale or exchange of residence) is amended to read as follows: "(d) LIMITATION.— "(1) IN GENERAL.—Subsection (a) shall not apply with respect to the sale of the taxpayer's residence if within 18 months before the date of such sale the taxpayer sold at a gain other property
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2871 used by him as his principal residence, and any part of such gain was not recognized by reason of subsection (a). "(2) SUBSEQUENT SALE CONNECTED WITH COMMENCING WORK AT NEW PLACE.—Paragraph (1) shall not apply with respect to the sale of the taxpayer's residence if— "(A) such sale was in connection with the commencement of work by the taxpayer as an employee or as a self-employed individual at a new principal place of work, and "(B) if the residence so sold is treated as the former residence for purposes of section 217 (relating to moving 26 USC 217. expenses), the taxpayer would satisfy the conditions of subsection (c) of section 217 (as modified by the other subsections of such section)." (b) RELATED TECHNICAL AMENDMENT.—Paragraph (4) of section 1034(c) is amended by adding at the end thereof the following new 26 USC 1034. sentence: "If a principal residence is sold in a sale to which subsection (d)(2) applies within 18 months after the sale of the old residence, for purposes of applying the preceding sentence with respect to the old residence, the principal residence so sold shall be treated as the last residence used during such 18-month period." (c) CLERICAL AMENDMENTS.— (1) The section heading of section 1034 is amended to read as . | follows: "SEC. 1034. ROLLOVER OF GAIN ON SALE OF PRINCIPAL RESIDENCE." (2) The table of sections for part III of subchapter O of chapter 1 is amended by striking out the item relating to section 1034 and inserting in lieu thereof the following new item: "Sec. 1034. Rollover of gain on sale of principal residence." (3) Subparagraph (B) of section 1083(e)(1) (relating to certain 26 USC 1083. acquisitions of real property) is amended by striking out "(relat- ing to sale or exchange of residence)" and inserting in lieu thereof "(relating to rollover of gain on sale of principal residence)". (4) Subparagraph (A) of section 1250(d)(7) (relating to gain from 26 USC 1250. dispositions of certain depreciable realty) is amended by striking out "relating to sale or exchange of residence" and inserting in lieu thereof "relating to rollover of gain on sale of principal residence". (5) Subparagraph (C) of section 6212(c)(2) (relating to cross 26 USC 6212. references) is amended by striking out "personal residence" and i n s e r t i n g i n l i e u t h e r e o f "principal residence". (6) Paragraph (4) of section 6504 (relating to cross references) 26 USC 6504. is amended by striking out "residence" and inserting in lieu t h e r e o f "principal residence' . (d) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 1034 apply to sales and exchanges of residences after July 26, 1978, in note, taxable years ending after such date. Subtitle B—Minimum Tax Provisions SEC. 421. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN CORPORATIONS. (a) IN GENERAL.—Part VI of subchapter A of chapter 1 (relating to minimum tax for tax preferences) is amended by inserting immedi- ately before section 56 the following new section:
92 STAT. 2872 PUBLIC LAW 95-600—NOV. 6, 1978 26 u s e 55. "SEC. 55. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN CORPORATIONS. "(a) ALTERNATIVE MINIMUM TAX IMPOSED.—In the case of a tax- payer other than a corporation, if— "(1) an amount equal to the sum of— "(A) 10 percent of so much of the alternative minimum tsixable income as exceeds $20,000 but does not exceed $60,000 plus "(B) 20 percent of so much of the alternative minimum taxable income as exceeds $60,000 but does not exceed $100,000, plus "(C) 25 percent of so much of the alternative minimum taxable income as exceeds $100,000, exceeds "(2) the regular tax for the taxable year, then there is imposed (in addition to all other taxes imposed by this title) a tax equal to the amount of such excess. "(b) DEFINITIONS.—For purposes of this section— "(1) ALTERNATIVE MINIMUM TAXABLE INCOME.—The term 'al- ternative minimum taxable income' means gross income— "(A) reduced by the sum of the deductions allowed for the taxable year, "(B) reduced by the sum of any amounts included in 26 use 667. income under section 667, and "(C) increased by an amount equal to the sum of the tax preference items for— "(i) adjusted itemized deductions (within the meaning 26 use 57. of section 57(a)(1)), and "(ii) capital gains (within the meaning of section 57(a)(9)). "(2) REGULAR TAX,—The term 'regular tax' means the taxes imposed by this chapter for the taxable year (computed without regard to this section and without regard to the taxes imposed by 26 use 72, 402, sections 72(m)(5)(B), 402(e), 408(f), and 667(b)) reduced by the sum 408, 667. of the credits allowable under subpart A of part IV of this 26 use 31. subchapter (other than under sections 31,39 and 43). 26 use 31, 39, «(C)CREDITS.- "(1) CREDITS OTHER THAN THE FOREIGN TAX CREDIT NOT ALLOW- ABLE.—For purposes of determining the amount of any credit 26 use 31. allowable under subpart A of part IV of this subchapter (other 26 use 33. than the foreign tax credit allowed under section 33(a)), the tax imposed by this section shall not be treated as a tax imposed by this chapter. "(2) FOREIGN TAX CREDIT ALLOWED AGAINST ALTERNATIVE MINI- MUM TAX.—The total amount of the foreign tax credit which can be taken against the tax imposed by subsection (a) shall be 26 use 901, determined under section 901 and sections 903 through 908. For 903-908. purposes of this determination— "(A) the amount of taxes paid or accrued to foreign countries or possessions of the United States in the taxable year shall be deemed to include an amount equal to the 26 use 33. lesser of (i) the foreign tax credit allowed under section 33(a) in computing the regular tax for the taxable year, or (ii) the tax imposed under subsection (a); 26 use 904. "(B) the limitation of section 904(a) shall be an amount equal to the same proportion of the sum of the tax imposed by this section against which such credit is taken and the 26 use 56. regular tax (excluding the tax imposed by section 56) which
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2873 the taxpayer's alternative minimun taxable income from sources without the United States (but not in excess of the taxpayer's entire alternative minimum taxable income) bears to his entire alternative minimum taxable income for the same taxable year. For purposes of the preceding sen- tence, the entire alternative minimum taxable income shall be reduced by an amount equal to the zero bracket amount; "(C) the term 'alternative minimum taxable income from "Alternative sources without United States' means the excess of the items minimum taxable of gross income from sources without the United States over income from that portion of the deductions taken into account in comput- sources without United States". ing alternative minimum taxable income which are de- ducted from those items of gross income in computing taxable income from sources without the United States; for purposes of this subparagraph, and except as provided in section 904, gross and taxable income from sources without the United States shall be determined under part I of subchapter N of chapter 1; and 26 u s e 861. "(D) the amount of foreign taxes paid during the taxable year which may be deemed to be paid in a preceding or succeeding year under section 904(c), the limitation of sec- 26 u s e 904. tion 904(a) shall be increased by the lesser of (i) the amount described in subparagraph (B) or (ii) the tax imposed under subsection (a). "(3) CARRYOVER AND CARRYBACK OF CERTAIN CREDITS.—In any taxable year in which a tax is imposed by this section (referred to as the current taxable year)— "(A) EMPLOYMENT CREDIT.—For purposes of determining under section 53(c) the amount of any jobs credit carryback Ante, p. 2835. or carryover to any other taxable year, the amount of the limitation under section 53(a) for the current taxable year shall be deemed to be— "(i) the amount of the credit allowable under section 44B for the current taxable year without regard to this Ante, p. 2834. subparagraph, reduced by "(ii) the amount equal to the lesser of (I) the amount of the credit allowable under section 44B for the current taxable year without regard to this subparagraph, or (II) the net tax imposed by this section for the current taxable year. "(B) WORK INCENTIVE PROGRAM CREDIT.—For purposes of determining under section 50A(b) the amount of any work Ante, p. 2836. incentive program credit carryback or carryover to any other taxable year, the amount of the limitation under section 50A(a)(2) for the current taxable year shall be deemed to be— "(i) the amount of the credit allowable under section 40 for the current taxable year without regard to this 26 u s e 40. subparagraph, reduced by "(ii) the amount equal to the lesser of (I) the amount of the credit allowable under section 40 for the current taxable year without regard to this subparagraph, or, (II) the net tax imposed by this section for the current taxable year reduced by the amount of reduction de- scribed in clause (ii) of subparagraph (A). "(C) INVESTMENT CREDIT.—For purposes of determining under section 46(b) the amount of any investment credit 26 u s e 46. 39-194 O—80—pt. 3 16 : QL3
92 STAT. 2874 PUBLIC LAW 95-600—NOV. 6, 1978 carryback or carryover to any other taxable year, the 26 use 46. ^ amount of the limitation under section 46(a)(3) for the current taxable year shall be deemed to be "(i) the amount of the credit allowable under section 26 use 38. 38 for the current taxable year without regard to this subparagraph, reduced by "(ii) the amount equal to the lesser of (I) the amount of the credit allowable under section 38 for the current taxable year without regard to this subparagraph, or (II) the net tax imposed by this section for the current taxable year reduced by the sum of the amounts of reduction described in clause (ii) of subparagraphs (A) and(B). "(D) NET TAX IMPOSED BY THIS SECTION.—For purposes of this paragraph, the term 'net tax imposed by this section' means the tax imposed by this section reduced by the foreign 26 use 33. tax credit allowed under section 33 (a), as modified by paragraph (2). 26 use 57. (b) AMENDMENT OF SECTION 57.—Section 57 (relating to items of tax preference) is amended— (1) by adding the following at the end of paragraph (9) subsec- tion (a): "(D) PRINCIPAL RESIDENCE.—For purposes of subparagraph (A), gain from the sale or exchange of a principal residence 26 use 1034. (within the meaning of section 1034) shall not be taken into account,", (2) by striking out the last sentence of subsection (a) and inserting in lieu thereof the following: "Paragraphs (3) and (11) shall not apply to a corporation other than an electing small 26 use 1371. business corporation (as defined in section 1371 (b)) and a 26 use 542. personal holding company (as defined in section 542). For pur- 26 use 56. poses of section 56, in the case of a taxpayer other than a corporation, the adjusted itemized deductions described in para- graph (1) and capital gains described in paragraph (9) shall not be treated as items of tax preference." (3) by striking out subsection (b)(1) and inserting the following in lieu thereof: "(1) IN GENERAL.—For purposes of paragraph (1) of subsection (a), the amount of the adjusted itemized deductions for any taxable year is the amount by which the sum of the itemized 26 use 63. deductions (as defined in section 63(f)) other than— "(A) the deduction for State and local taxes provided by 26 use 164. section 164(a), "(B) the deduction for medical, dental, etc., expenses 26 use 213. provided by section 213, "(C) the deduction for casualty losses described in section 26 use 165. 165(c)(3), and 26 use 691. "(D) the deduction allowable under section 691(c), exceeds 60 percent of the taxpayer's adjusted gross income reduced by the items in subparagraphs (A) through (D) for the taxable year.", and (4) by striking out subparagraph (A) of subsection (b)(2), as Post, p. 2897. amended by section 701 of this Act, and inserting in lieu thereof \ the following: "(A) IN GENERAL.—In the case of an estate or trust, for purposes of paragraph (1) of subsection (a), the amount of the adjusted itemized deductions for any taxable year is the
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2875 amount by which the sum of the deductions for the taxable year other than— "(i) the deductions allowable in arriving at adjusted gross income, "(ii) the deduction for personal exemption provided by section 642(b), 26 USC 642. "(iii) the deduction for casualty losses described in section 165(c)(3), 26 USC 165. "(iv) the deductions allowable under section 651(a), 661(a), or 691(c), 26 USC 651, "(v) the deduction for State and local taxes provided ^^l' ^91. by section 164(a), and "(vi) the deductions allowable to a trust under section 642(c) to the extent that a corresponding amount is 26 USC 642. included in the gross income of the beneficiary under section 662(a)(1) for the taxable year of the beneficiary 26 USC 662. with which or within which the taxable year of the trust ends, exceeds 60 percent of the adjusted gross income reduced by the items in clauses (i) through (vi) for the taxable year." (c) AMENDMENTS OF SECTION 58.—Section 58 (relating to rules for 26 USC 58. application of part) is amended— (1) by adding at the end of subsection (a) the following new sentence: "In the case of a married individual who files a separate return for the taxable year, the amount determined under paragraph (1) of section 55(a) shall be an amount equal to 26 USC 55. one-half of the amount which would be determined under such paragraph if the amount of the individual's alternative mini- mum taxable income were multiplied by 2."; (2) by amending subsection (c) to read as follows: "(c) ESTATES AND TRUSTS.—In the case of an estate or trust— "(1) the sum of the items of tax preference for any t£ixable year of the estate or trust shall be apportioned between the estate or trust and the beneficiaries on the basis of the income of the estate or trust allocable to each, "(2) the $10,000 amount specified in section 56 applicable to 26 USC 56. such estate or trust shall be reduced to an amount which bears the same ratio to $10,000 as the portion of the sum of the items of tax preference allocated to the estate or trust under paragraph (1) bears to such sum, and "(3) the liability for the tax imposed by section 55 (a) shall be determined as in the case of a married individual filing sepa- rately.", and .i (3) by deleting subsection (i) (relating to the definition of corporation). (d) TAXES TAKEN INTO ACCOUNT IN CASE OF ACCUMULATION DISTRI- BUTIONS BY TRUSTS.—The second sentence of section 666(b) (relating 26 USC 666. to total taxes deemed distributed) is amended by striking out "taxes" and inserting in lieu thereof "taxes (other than the tax imposed by section 55)". (e) TECHNICAL AMENDMENTS.— (1) Paragraph (4) of section (5)(a) (as redesignated by section 401 26 USC 5. of this Act) (relating to cross references relating to tax on individuals) is amended to read as follows:
92 STAT. 2876 PUBLIC LAW 95-600—NOV. 6, 1978 "(4) For minimum tax for taxpayers other than corporations, see sec- tion 55.". 26 use 443. (2) Subsection (d) of section 443 (relating to adjustment in computing minimum tax for short periods) is amended to read as follows: "(d) ADJUSTMENT IN COMPUTING MINIMUM TAX FOR TAX PREFER- ENCES.—If a return is made for a short period by reason of subsection (a), then— "(1) in the case of a taxpayer other than a corporation, the alternative minimum taxable income for the short period shall be placed on an annual basis by multiplying that amount by 12 and dividing the result by the number of months in the short period, and the amount computed under paragraph (1) of section 26 use 55. 55(a) shall be the same part of the tax computed on the annual basis as the number of months in the short period is of 12 months; and "(2) in the case of a corporation, the $10,000 amount specified 26 use 56. in section 56 (relating to minimum tax for tax preferences), 26 use 58. modified as provided by section 58, shall be reduced to the amount which bears the same ratio to such specified amount as the number of days in the short period bears to 365.". 26 use 511. (3) Subsection (d) of section 511 (relating to tax preferences) is amended to read as follows: "(d) TAX PREFERENCES.— "(1) ORGANIZATIONS TAXABLE AT CORPORATE RATES.—If an orga- nization is subject to tax on unrelated business taxable income 26 use 56. pursuant to subsection (a), the tax imposed by section 56 shall apply to such organizations with respect to items of tax prefer- ence which enter into the computation of unrelated business taxable income in the same manner as section 56 applies to corporations. "(2) ORGANIZATIONS TAXABLE AS TRUSTS.—If an organization is subject to tax on unrelated business taxable income pursuant to subsection (b), the taxes imposed by section 55 and section 56 (as the case may be) shall apply to such organization with respect to items of tax preference which enter into the computation of unrelated business taxable income." 26 use 871. (4) Paragraph (1) of section 871(b) (relating to tax on nonresi- dent alien individuals) is amended by inserting ", section 55," after "section 1". 26 use 877. (5) Subsection (b) of section 877 (relating to expatriation to avoid tax) is amended by inserting ", section 55," after "section 1". 26 use 904. (6) Section 904(h) (relating to cross references) is amended to read as follows: "(h) CROSS REFERENCES.— / • "(1) For increase of limitation under subsection (a) for taxes paid with respect to amounts received which were included in the gross income of the taxpayer for a prior taxable year as a United States shareholder with respect to a controlled foreign corporation, see section 960(b). "(2) For modiflcation of limitation under subsection (a) for purposes of determining the amount of credit which can be taken by an individual against the alternative minimum tax, see section 55(c).". 26 use 6015. (7) Paragraph (1) of section 6015(c) (defining estimated tax) is amended by striking out "section 56" and inserting in lieu thereof "section 55 or 56".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2877 (8) Subparagraph (A) of section 6362(b) (relating to qualified 26 USC 6362. individual income taxes) is amended by striking out "section 56" and inserting in lieu thereof "section 55 or 56". (9) Paragraph (1) of section 6654(f) (relating to tax computed 26 USC 6654. after applications of credit against tax) is amended by striking out "section 56" and inserting in lieu thereof "section 55 or 56". (f) CLERICAL AMENDMENT.—The table of sections for part VI of subchapter A of chapter 1 is amended by adding at the beginning thereof the following new item: "Sec. 55. Alternative Minimum Tax for Taxpayers other than Corpora- tions.". (g) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 55 note. apply to taxable years beginning after December 31,1978, except that the amendment made by paragraph (1) of subsection (b) shall apply to sales and exchanges made after July 26,1978, in taxable years ending after such date. SEC. 422. TREATMENT OF INTANGIBLE DRILLING COSTS FOR PURPOSES OF THE MINIMUM TAX. Subsection (b) of section 308 of the Tax Reduction and Simplifica- 26 USC 57 note. tion Act of 1977 is amended by striking out ", and before January 1, 1978". SEC. 423. AMENDMENT TO DEFINITION OF FOREIGN SOURCE CAPITAL GAIN TAX PREFERENCES. (a) GENERAL RULE.—Section 58(g)(2) (relating to capital gains and 26 USC 58. stock options) is amended by striking out the period at the end of the last sentence thereof, and inserting the following: "; except that, for purposes of subparagraph (B), preferential treatment shall be deemed not to be accorded to capital gain recognized on the receipt of property (other than money) in exchange for stock of a corporation which is engaged in the active conduct of a trade or business within one or more foreign countries or possessions if (i) such exchange is described in section 332,351,354,355,356, or 361, (ii) such exchange is 26 USC 332, made in the foreign country or possession in which such corporation's 351, 354, 355,, business is primarily carried on, (iii) such exchange is not subject to 3^^' 3^^- tax by such foreign country or possession because it is regarded under the laws of such country or possession as a transaction in which gain .or loss is either not realized or not recognized, and (iv) such gain, if it had been realized and recognized under the laws of such country or possession, would not have been accorded preferential treatment and would have been subject to tax at a rate of at least 28 percent (30 / percent if the exchange occurs before January 1,1979). For purposes of computing the minimum tax, if any, which may be payable on a subsequent transaction involving any property received upon the exchange of stock described in the preceding sentence, the property received shall be treated as having the same basis in the taxpayer's hands immediately after such exchange as such stock had immedi- ately before such exchange." (b) EFFECTIVE DATE.—The amendment made by this section shall 26 USC 58 note. take effect on the date of the enactment of this Act.
92 STAT. 2878 PUBLIC LAW 95-600—NOV. 6, 1978 Subtitle C—Maximum Tax Provisions SEC. 441. TREATMENT OF CAPITAL GAINS FOR PURPOSES OF THE MAXI- MUM TAX. 26 u s e 1348. (a) GENERAL RULE.—Subparagraph (b) of section 1348(b)(2) (relating to definition of personal service income) is amended by striking out "items of tax preference (as defined in section 57)" and inserting in lieu thereof "items of tax preference described in subsection (a) (other than paragraph (9)) of section 57". • ^ 26 u s e 1348 (b) EFFECTIVE DATE.— note. (1) GENERAL RULE.—The amendment made by subsection (a) shall apply with respect to taxable years beginning after October 31,1978. (2) TRANSITIONAL RULES.—In the case of a taxable year which begins before November 1,1978, and ends after October 31,1978, the amendment made by subsection (a) shall apply with respect to so much of the net capital gain of the taxpayer for the taxable year as is attributable to sales or exchanges after October 31, 1978. SEC. 442. DETERMINATION OF PERSONAL SERVICE INCOME FROM NON- SALARIED TRADE OR BUSINESS ACTIVITIES. (a) IN GENERAL.—Subparagraph (A) of section 1348(b)(1) (relating to personal service income) is amended by adding at the end thereof the following: "For purposes of this subparagraph, section 911(b) shall be applied without regard to the phrase ', not in excess of 30 percent of his share of net profits of such trade or business,'.". 26 u s e 1348 (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall note. apply with respect to tsixable years beginning after December 31, 1978. TITLE V—OTHER TAX PROVISION Subtitle A—Administrative Provisions SEC. 501. REPORTING REQUIREMENTS WITH RESPECT TO CHARGED TIPS. 26 use 6001. (a) RECORDS.—Section 6001 (relating to notice or regulations requir- ing records, statements, and special returns) is amended by adding at the end thereof the following: "The only records which an employer shall be required to keep under this section in connection with charged tips shall be charge receipts and copies of statements 26 use 6053. furnished by employees under section 6053(a)." 26 use 6041. (b) RETURNS.—Section 6041 (relating to information at source) is amended by redesignating subsection (d) as subsection (c) and by adding at the end thereof the following new subsection: "(d) SECTION DOES NOT APPLY TO CERTAIN TIPS.—This section shall 26 use 6053. not apply to tips with respect to which section 6053(a) (relating to reporting of tips) applies." 26 u s e 6001 (c) EFFECTIVE DATE.—The amendments made by this section shall note. apply to payments made after December 31,1978.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2879 SEC. 502. EXTENSION OF OPTIONAL SMALL TAX CASE PROCEDURES AND EXPANSION OF AUTHORITY OF COMMISSIONERS OF TAX COURT. (a) EXTENDING THE OPTIONAL SMALL TAX CASE PROCEDURES TO ADDITIONAL TAXPAYERS.— (1) IN GENERAL.—Subsection (a) of section 7463 (relating to 26 USC 7463. small tax cases) is amended by striking out paragraphs (1) and (2) and inserting in lieu thereof the following: "(1) $5,000 for any one taxable year, in the case of the taxes imposed by subtitle A, 26 USC 1. "(2) $5,000, in the case of the tax imposed by chapter 11, or 26 USC 2001 et "(3) $5,000 for any one calendar year, in the case of the tax *^9- imposed by chapter 12,". 26 USC 2501 et (2) C O N F O R M I N G AMENDMENTS.— ^^i- (A) The heading of section 7463 is amended by striking out "$i,50o" and inserting in lieu thereof "$5,ooo", (B) the table of sections for part II of subchapter C of chapter 76 is amended by striking out "$i,500" in the item relating to section 7463 and inserting in lieu thereof "$5,000". Ot>) AUTHORITY TO ASSIGN SMALL TAX CASES TO COMMISSIONERS.— Section 7463 (relating to small tax cases) is amended by adding at the end thereof the following new subsection: "(g) COMMISSIONERS.—The chief judge of the Tax Court may assign proceedings conducted under this section to be heard by the Commis- sioners of the court, and the court may authorize a commissioner to make the decision of the court with respect to any such proceeding, subject to such conditions and review as the court may by rule provide." (c) AUTHORITY OF TAX COURT COMMISSIONERS TO ADMINISTER OATHS, PROCURE TESTIMONY, ETC.—Subsection (a) of section 7456 26 use 7456. (relating to the administration of oaths and testimony) is amended— (1) by striking out "any judge of the Tax Court" each place it appears and inserting in lieu thereof "any judge or commissioner of the Tax Court"; and (2) by striking out "by the judge" and inserting in lieu thereof "by the judge or commissioner". (d) EFFECTIVE DATES.— 26 USC 7463 (1) SUBSECTION (a).—The amendments made by subsection (a) note, shall take effect on the first day of the first calendar month beginning more than 180 days after the date of the enactment of this Act. (2) SUBSECTIONS (b) AND (C).—The amendments made by subsec- tion (b) and (c) shall take effect on the date of the enactment of this Act. SEC. 503. DISCLOSURE OF RETURN INFORMATION TO CERTAIN FEDERAL OFFICERS AND EMPLOYEES FOR PURPOSES OF TAX ADMIN- ISTRATION, ETC. (a) IN GENERAL.—Paragraph (2) of section 6103(h) (relating to 26 USC 6103. Department of Justice) is amended— (1) by striking out "A" after the heading, and inserting in lieu thereof "In a matter involving tax administration, a", (2) by striking out "attorneys" after "open to inspection by or disclosure to", in paragraph (2) and inserting in lieu thereof "officers and employees",
92 STAT. 2880 PUBLIC LAW 95-600—NOV. 6, 1978 (3) by inserting "any proceeding before a Federal grand jury or" before "preparation for any proceeding" in paragraph (2), (4) by striking out "in a matter involving tax administration" after "or any Federal or State court". (b) APPLICATION TO TAXPAYER.— 26 use 6103. (1) Section 6103(h)(2) is amended by striking out subparagraph (A) and inserting in lieu thereof the following: "(A) the taxpayer is or may be a party to the proceeding, or the proceeding arose out of, or in connection with, determin- ing the taxpayer's civil or criminal liability, or the collection of such civil liability in respect of any tax imposed under this •^ •' title;". (2) Section 6103(h)(4) is amended by striking out subparagraph (A) and inserting in lieu thereof the following: "(A) the taxpayer is a party to the proceeding, or the proceeding arose out of, or in connection with, determining the taxpayer's civil or criminal liability, or the collection of such civil liability, in respect of any tax imposed under this title;". SEC. 504. REFUND ADJUSTMENTS FOR AMOUNTS HELD UNDER CLAIM OF RIGHT. 26 use 6411. (a) IN GENERAL.—Section 6411 (relating to application for adjust- ment) is amended by adding at the end thereof the following new subsection: "(d) TENTATIVE REFUND OF TAX UNDER CLAIM OF RIGHT ADJUST- MENT.— "(1) APPLICATION.—A taxpayer may file an application for a tentative refund of any amount treated as an overpajmient of tax 26 use 1341. for the taxable year under section 1341(b)(1). Such application shall be in such manner and form as the Secretary may prescribe by regulation and shall— "(A) be verified in the same manner as an application under subsection (a), "(B) be filed during the period beginning on the date of filing the return for such taxable year and ending on the date 12 months from the last day of such taxable year, and "(C) set forth in such detail and with such supporting data such regulations prescribe— "(i) the amount of the tax for such taxable year computed without regard to the deduction described in section 1341(a)(2), "(ii) the amount of the tax for all prior taxable years for which the decrease in tax provided in section 1341(a)(5)(B) was computed, "(iii) the amount determined under section 1341(a)(5)(B), "(iv) the amount of the overpayment determined under section 1341(b)(1); and "(v) such other information as the Secretary may >' require. "(2) ALLOWANCE OF ADJUSTMENTS.—Within a period of 90 days from the date on which an application is filed under paragraph (1), or from the last day of the month in which falls the last date prescribed by law (including any extension of time granted the taxpayer) for filing the return for taxable year in which the overpayment occurs, whichever is later, the Secretary shall— "(A) review the application.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 21381 "(B) determine the amount of the overpayment, and "(C) apply, credit, or refund such overpayment in a manner similar to the manner provided in subsection (b). "(3) CONSOLIDATED RETURNS.—The provisions of subsection (c) shall apply to an adjustment under this subsection to the same extent and manner as the Secretary may by regulations provide.". (b) TECHNICAL AND CONFORMING AMENDMENTS.— (1)(A) The heading for section 6411 is amended by inserting 26 USC 6411. "AND REFUND" after "CARRYBACK". (B) The table of sections for subchapter B of chapter 65 is amended by inserting "and refund" after "carryback" in the item relating to section 6411. (2) Paragraph (3) of section 6213(b) (relating to assessments 26 USC 6213. arising out of tentative carryback adjustments) is amended— (A) by inserting "OR REFUND" after "CARRYBACK" in the heading; and (B) by inserting "or the amount described in section 1341(b)(1)" after "carryback". (3) Subsection (m) of section 6501 (relating to tentative carry- 26 USC 6501. back adjustment period) is amended by inserting "and refund" after "carryback" the first place it appears. (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 6411 apply to tentative refund claims filed on and after the date of the "0^. enactment of this Act. Subtitle B—Estate and Gift Tax Provisions SEC. 511. REDUCTION OF VALUE TAKEN INTO ACCOUNT FOR ESTATE TAX PURPOSES WHERE SPOUSE OF DECEDENT MATERIALLY PAR- TICIPATED IN FARM OF OTHER BUSINESS (a) I N GENERAL.—Section 2040 (relating to joint interests) is 26 USC 2040. amended by adding at the end thereof the following new subsection: "(c) VALUE WHERE SPOUSE OF DECEDENT MATERIALLY PARTICIPATED IN FARM OR OTHER BUSINESS.— "(1) IN GENERAL.—Notwithstanding subsections (a), in the case of an eligible joint interest in section 2040(c) property, the value included in the gross estate with respect to such interest by reason of this section shall be— "(A) the value of such interest, reduced by "(B) the sum of— "(i) the section 2040(c) value of such interest, and "(ii) the adjusted consideration furnished by the dece- dent's spouse. "(2) LIMITATIONS.— "(A) AT LEAST 50 PERCENT OF VALUE TO BE INCLUDED.— Paragraph (1) shall in no event result in the inclusion in the decedent's gross estate of less than 50 percent of the value of the eligible joint interest. "(B) AGGREGATE REDUCTION.—The aggregate decrease in the value of the decedent's gross estate resulting from the application of this subsection shall not exceed $500,000. "(3) ELIGIBLE JOINT INTEREST DEFINED.—For purposes of para- graph (1) the term 'eligible joint interest' means any interest in property held by the decedent and the decedent's spouse as joint tenants or as tenants by the entirety, but only if—
92 STAT. 2882 PUBLIC LAW 95-600—NOV. 6, 1978 "(A) such joint interest was created by the decedent, the decedent's spouse, or both, and "(B) in the case of a joint tenancy, only the decedent and the decedent's spouse are joint tenants. 26 use 2040. "(4) SECTION 2040(C) PROPERTY DEFINED.—For purposes of para- graph (1), the term 'section 2040(c) property' means any interest in any real or tangible personal property which is devoted to use as a farm or used for farming purposes (within the meaning of 26 use 2032A. paragraphs (4) and (5) of section 2032A(e)) or is used in any other trade or business, "(5) SECTION 2040(c) VALUE.—For purposes of paragraph (1), the term 'section 2040(c) value' means— "(A) the excess of the value of the eligible joint interest • ; ,.; over the adjusted consideration furnished by the decedent, the decedent's spouse, or both, multiplied by "(B) 2 percent for each taxable year in which the spouse materially participated in the operation of the farm or other trade or business but not to exceed 50 percent. "(6) ADJUSTED CONSIDERATION.—For the purpose of this subsec- > tion, the term 'adjusted consideration' means— "(A) the consideration furnished by the individual con- cerned (not taking into account any consideration in the form of income or gain from the business of which the section 2040(c) property is a part) determined under rules similar to the rules set forth in subsection (a), and "(B) an amount equal to the amount of interest which the consideration referred to in subparagraph (A) would have earned over the period in which it was invested in the farm or other business if it had been earning interest throughout such period at 6 percent simple interest. "(7) MATERIAL PARTICIPATION.—For purposes of paragraph (1), material participation shall be determined in a manner similar to the manner used for purposes of paragraph (1) of section 26 use 1402. 1402(a) (relating to net earnings from self-employment). "(8) VALUE.—For purposes of this subsection, except where the context clearly indicates otherwise, the term 'value' means value determined without regard to this subsection. (9) ELECTION TO HAVE SUBSECTION APPLY.—This subsection shall apply with respect to a joint interest only if the estate of the decedent elects to have this subsection apply to such interest. Such an election shall be made not later than the time prescribed 26 use 6075. by section 6075(a) for filing the return of tax imposed by section 26 u s e 2001. 2001 (including extensions thereof), and shall be made in such manner as the Secretary shall by regulations prescribe." 26 u s e 2040 (b) EFFECTIVE DATE.—The amendement made by subsection (a) note. shall apply with respect to estates of decedents dying after Decem- ber 31,1978. SEC. 512. TREATMENT OF CERTAIN INTERESTS HELD BY DECEDENT'S FAMILY FOR PURPOSES OF THE EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX PROVIDED BY SECTION 6166. (a) INTEREST HELD BY MEMBER OF DECEDENT'S FAMILY TREATED AS 26 use 6166. HELD BY DECEDENT.—Paragraph (2) of section 6166(b) (relating to definitions and special rules) is amended by adding at the end thereof the following new subparagraph: "(D) CERTAIN INTERESTS HELD BY MEMBERS OF DECEDENT'S FAMILY.—All stock and all partnership interests held by the decedent or by any member of his family (within the mean-
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2883 ing of section 267(c)(4)) shall be treated as owned by the 26 use 267. decedent," (b) ELECTION FOR PURPOSES OF THE 20-PERCENT REQUIREMENTS WITH RESPECT TO PARTNERSHIP INTERESTS AND STOCK WHICH IS NOT READ- ILY TRADABLE.—Subsection (b) of section 6166 (relating to definitions 26 USC 6166. and special rules) is amended by adding at the end thereof the following new paragraph: "(7) PARTNERSHIP INTERESTS AND STOCK WHICH IS NOT READILY TRADABLE.— "(A) I N GENERAL.—If the executor elects the benefits of this paragraph (at such time and in such manner as the ' Secretary shall by regulations prescribe), then— "(i) for purposes of paragraph (l)(B)(i) or (l)(C)(i) (whichever is appropriate) and for purposes of subsec- tion (c), any capital interest in a partnership and any non-readily-tradable stock which (after the application of paragraph (2)) is treated as owned by the decedent shall be treated as included in determining the value of the decedent's gross estate, "(ii) the executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a), and 26 USC 6151. "(iii) section 66010") (relating to 4-percent rate of 26 USC 6601. interest) shall not apply. "(B) NON-READILY-TRADABLE STOCK DEFINED.—For purposes of this paragraph, the term 'non-readily-tradable stock' means stock for which, at the time of the decedent's death, there was no market on a stock exchange or in an over-the- counter market." (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 6166 apply with respect to the estates of decedents dying after the date of "ote. the enactment of this Act. SEC. 513. SUBORDINATION OF SPECIAL LIENS FOR ADDITIONAL ESTATE TAX ATTRIBUTABLE TO FARM, ETC., VALUATION. (a) GENERAL RULE.—Subsection (d) of section 6325 (relating to 26 USC 6325. subordination of lien) is amended by striking out "or" at the end of paragraph (1), by striking out the period at the end of paragraph (2) and inserting in lieu thereof ", or", and by adding at the end thereof the following new paragraph: "(3) in the case of any lien imposed by section 6324B, if the 26 USC 6324B. Secretary determines that the United States will be adequately secured after such subordination." (b) EFFECTIVE DATE.—The amendments made by subsection (a) 26 USC 6325 shall apply with respect to the estates of decedents dying after "ote. December 31,1976. SEC. 514. AMENDMENT OF GOVERNING INSTRUMENTS TO MEET RE- QUIREMENTS FOR GIFTS OF SPLIT INTEREST TO CHARITY. (a) CHARITABLE LEAD TRUSTS AND CHARITABLE REMAINDER TRUSTS IN THE CASE OF ESTATE TAX.—The first sentence of paragraph (3) of section 2055(e) is amended to read as follows: "In the case of a will 26 USC 2055. executed before December 31, 1977, or a trust created before such date, if a deduction is not allowable at the time of the decedent's death because of the failure of an interest in property which passes from the decedent to a person, or for a use, described in subsection (a) J to meet the requirements of subparagraph (A) or (B) of paragraph (2) of this subsection, and if the governing instrument is amended or
92 STAT. 2884 PUBLIC LAW 95-600—NOV. 6, 1978 conformed on or before December 31, 1978, or, if later, on or before the 30th day after the date on which judicial proceedings begun on or before December 31, 1978 (which are required to amend or conform the governing instrument), become final, so that interest is in a trust which meets the requirements of such subparagraph (a) or (B) (as the case may be), a deduction shall nevertheless be allowed." 26 use 2055 (b) CHARITABLE LEAD TRUSTS AND CHARITABLE REMAINDER TRUSTS note. IN THE CASE OF INCOME AND GiFT TAXES.—Under regulations pre- scribed by the Secretary of the Treasury or his delegate, in the case of trusts created before December 31, 1977, provisions comparable to section 2055(e)(3) of the Internal Revenue Code of 1954 (as amended by subsection (a)) shall be deemed to be included in sections 170 and 26 use 170, 2522 of the Internal Revenue Code of 1954. 2522 SEC. 515. DEFERRAL OF CARRYOVER BASIS RULES. The following provisions are each amended by striking out "Decem- ber 31, 1976" and inserting in Heu thereof '^'December 31, 1979": 26 use 1014. (1) the caption and text of section 1014(d) (relating to basis of property acquired from the decedent); 26 use 1016. (2) section 1016(a)(23) (relating to adjustments to basis); 26 use 1023. (3) the heading of section 1023 (relating to carryover basis for certain property); (4) section 1023(a) (relating to general rule for carryover basis); (5) the item relating to section 1023 in the table of sections for part II of subchapter O of chapter I; and 26 use 1023 (6) section 2005(f)(1) of the Tax Reform Act of 1976 (relating to note. effective dates for carryover basis provisions). Subtitle C—Other Excise Tax Provisions SEC. 520. REDUCTION OP ADMINISTRATION TAX ON PRIVATE FOUNDA- TIONS. 26 use 4940. (a) IN GENERAL.—Subsection (a) of section 4940 (relating to excise tax based on investment income) is amended by striking out "4 percent" and inserting in lieu thereof "2 percentf'. 26 use 4940 (b) EFFECTIVE DATE.—The amendment made by the first section of note. this Act shall apply to taxable years beginning after September 30, 1977. SEC. 521. EXCISE TAX ON CERTAIN GAMING DEVICES. (a) INCREASE IN CREDIT FOR STATE TAX.—Paragraph (2) of section 26 use 4464. 4464(b) (relating to limitations on the credit for State-imposed taxes) is amended by striking out "80 percent" in the heading and text thereof and inserting in lieu thereof "95 percent". Repeal. (b) REPEAL OF OCCUPATIONAL TAX.—Subchapter B of chapter 36 is 26 use repealed. 4461-4464. (c) CONFORMING AMENDMENTS.— 26 use 4402. (1) Section 4402(2) (relating to exemptions from taxes on wagering) is amended to read as follows: "(2) CoiN-OPERATED DEVICES.—On any wager placed in a coin- 26 use 4462. Operated device (as defined in section 4462 as in effect for years beginning before July 1,1980), or on any amount paid, in lieu of inserting a coin, token, or similar object, to operate a device described in section 4462(a)(2) (as so in effect), or". 26 use 4901. (2) Subsection (a) of section 4901 (relating to payment of occupational tax) is amended by striking out "or 4461(a)(1) (coin- operated gaming devices)".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2885 (d) EFFECTIVE DATES.— 26 use 4464 (1) The amendment made by subsection (a) shall apply with note. respect to years ending June 30, 1979, and June 30, 1980. (2) The amendments made by subsections (b) and (c) shall apply with respect to years beginning after June 30,1980. SEC. 522. TREATMENT OF CERTAIN PRIVATE FOUNDATIONS FOR PUR- POSES OF SECTION 4942. (a) GENERAL RULE.—Subsection 0") of section 4942 (relating to other 26 use 4942. definitions) is amended by adding at the end thereof the following new paragraph: "(6) CERTAIN ELDERLY CARE FACILITIES.—For purposes of this section (but no other provisions of this title), the term 'operating foundation' includes any organization which, on May 26, 1969, and at all times thereafter before the close of the taxable year, operated and maintained as its principal functional purpose facilities for the long-term care, comfort, maintenance, or educa- tion of permanently and totally disabled persons, elderly per- sons, needy widows, or children but only if such organization meets the requirements of paragraph (3)(B)(ii)." Ot)) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 use 4942 apply to taxable years beginning after December 31,1969. note. Subtitle D—Income Tax Provisions SEC. 530. CONTROVERSIES INVOLVING WHETHER INDIVIDUALS ARE EM- PLOYEES FOR PURPOSES OF THE EMPLOYMENT TAXES. (a) TERMINATION OF CERTAIN EMPLOYMENT TAX LIABILITY FOR 26 use 3401 PERIODS BEFORE 1980.— note. (1) I N GENERAL.—If— (A) for purposes of emplo3mient taxes, the taxpayer did not treat an individual as an employee for any period ending before January 1,1980, and (B) in the case of periods after December 31, 1978, all Federal tax returns (including information returns) required to be filed by the taxpayer with respect to such individual for such period are filed on a basis consistent with the tax- payer's treatment of such individual as not being an employee, then, for purposes of appljdng such taxes for such period with respect to the taxpayer, the individual shall be deemed not to be an employee unless the taxpayer had no reasonable basis for not treating such individual as an employee. (2) STATUTORY STANDARDS PROVIDING ONE METHOD OF SATISFY- ING THE REQUIREMENTS OF PARAGRAPH (i).—For purposes of paragraph (1), a taxpayer shall in any case be treated as having a reasonable basis for not treating an individual as an employee for a period if the taxpayer's treatment of such individual for such period was in reasonable reliance on any of the following: (A) judicial precedent, published rulings, technical advice with respect to the taxpayer, or a letter ruling to the taxpayer; (B) a past Internal Revenue Service audit of the taxpayer in which there was no assessment attributable to the treat- ment (for employment tax purposes) of the individuals holding positions substantially similar to the position held by this individual; or
92 STAT. 2886 PUBLIC LAW 95-600—NOV. 6, 1978 ^ (C) long-standing recognized practice of a significant seg- ment of the industry in which such individual was engaged. (3) CONSISTENCY REQUIRED IN THE CASE OF I 9 7 9 TAX TREAT- MENT.—Paragraph (1) shall not apply with respect to the treat- ment of any individual for employment tax purposes for any period ending after December 31, 1978, and before January 1, 1980, if the taxpayer (or a predecessor) has treated any individual holding a substantially similar position as an employee for purposes of the employment tgixes for any period beginning after December 31,1977. (4) REFUND OR CREDIT OF OVERPAYMENT.—If refund or credit of any overpayment of an employment tax resulting from the application of paragraph (1) is not barred on the date of the enactment of this Act by any law or rule of law, the period for filing a claim for refund or credit of such overpayment (to the extent attributable to the application of paragraph (1)) shall not expire before the date 1 year after the date of the enactment of this Act. (b) PROHIBITION AGAINST REGULATIONS AND RUUNGS ON EMPLOY- MENT STATUS.—No regulation or Revenue Ruling shall be published on or after the date of the enactment of this Act and before January 1, 1980 (or, if earlier, the effective date of any law hereafter enacted clarifying the employment status of individuals for purposes of the emplo5anent taxes) by the Department of the Treasury (including the Internal Revenue Service) with respect to the employment status of any individual for purposes of the employment taxes. (c) DEFINITIONS.—For purposes of this section— (1) EMPLOYMENT TAX.—The term "employment tax" means any tax imposed by subtitle C of the Internal Revenue Code of 26 use 3101. 1954. (2) EMPLOYMENT STATUS.—The term "emplojntnent status" means the status of an individual, under the usual common law rules applicable in determining the employer-employee relation- ship, as an employee or as an independent contractor (or other individual who is not an employee). SEC. 531. CERTAIN ORIGINAL STOCKHOLDERS OF COOPERATIVE HOUS- ING CORPORATIONS. 26 use 216. (a) I N GENERAL.—Subsection (b) of section 216 (relating to deduc- tion of taxes, interest, and business depreciation by cooperative housing corporation tenant-stockholder) is amended by adding at the end thereof the following new paragraph: "(6) STOCK OWNED BY PERSON FROM WHOM THE CORPORATION ACQUIRED ITS PROPERTY.— "(A) IN GENERAL.—If the original seller acquires any stock of the corporation— "(i) from the corporation by purchase, or "(ii) by foreclosure (or by instrument in lieu of fore- closure) of any purchase-money security interest in such stock held by the original seller, the original seller shall be treated as a tenant-stockholder for a period not to exceed 3 years from the date of acquisition. "(B) ORIGINAL SELLER MUST HAVE RIGHT TO OCCUPY APART- MENT OR HOUSE.—Subparagraph (A) shall apply with respect to any acquisition of stock only if, together with such acquisition, the original seller acquires the right to occupy an apartment or house to which such stock is appurtenant.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2887 For purposes of the preceding sentence, there shall not be taken into account the fact that, by agreement with the corporation, the original seller or its nominee may not occupy the house or apartment without the prior approval of the corporation. "(C) ORIGINAL SELLER DEFINED.—For purposes of this para- graph, the term 'original seller' means the person from whom the corporation has acquired the apartments or houses (or leaseholds therein).'' (b) EFFECTIVE DATE.—The amendment made by this section shall 26 use 216 apply to stock acquired after the date of the enactment of this Act. note. Subtitle E—Other Income Tax Provisions SEC. 540. DEPOSITS IN CERTAIN BRANCHES OF PUERTO RICAN SAVINGS AND LOAN ASSOCIATIONS, (a) I N GENERAL.—Subparagraph (F) of section 861(a)(1) (relating to 26 USC 861. income from sources within the United States) is amended to read as follows: "(F) interest— "(i) on deposits with a foreign branch of a domestic corporation or a domestic partnership if such branch is engaged in the commercial banking business, and "(ii) on amounts satisfying the requirements of para- graph (2) of subsection (c) which are paid by a foreign branch of a domestic corporation or a domestic partnership,". (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 861 apply to taxable years beginning after the date of the enactment of "ote. this Act. SEC. 541. TAXATION OF ALASKA NATIVE CLAIMS SETTLEMENT ACT CORPORATIONS. Section 21 of the Alaska Native Claims Settlement Act (43 U.S.C. 1620) is amended by adding three new subsections at the end thereof, as follows: "(g) In the case of any Native Corporation established pursuant to this Act, income for purposes of any form of Federal, State, or local taxation shall not be deemed to include the value of— "(1) the receipt, acquisition, or use of any resource information or analysis (including the receipt of any right of access to such information or analysis) relating to lands or interests therein conveyed, selected but not conveyed, or available for selection pursuant to this Act; "(2) the promise or performance by any person or by any Federal, State, or local government agency of any professional or technical services relating to the resources of lands or interests therein conveyed, selected but not conveyed, or available for selection pursuant to this Act, including, but not limited to, services in connection with exploration on such lands for oil, gas, or other minerals; and "(3) the expenditure of funds, incurring of costs, or the use of any equipment or supplies by any person or any Federal, State, or local government agency, or any promise, agreement, or other arrangement by such person or agency to expend funds or use any equipment or supplies for the purpose of creating, develop- ing, or acquiring the resource information or analysis described
92 STAT. 2888 PUBLIC LAW 95-600—NOV. 6, 1978 in paragraph (1) or for the purpose of performing or otherwise furnishing the services described in paragraph (2): Provided, That this paragraph shall not apply to any funds paid to a Native Corporation established pursuant to this Act or to any subsidiary thereof. This subsection shall be effective as of December 18,1971, and, with respect to each Native Corporation, shall remain in full force and effect for a period of twenty years thereafter or until the Corporation has received conveyance of its full land entitlement, whichever first occurs. Except as set forth in this subsection and in subsection (d) hereof, all rents, royalties, profits, and other revenues or proceeds derived from real property interests selected and conveyed pursuant 43 use 1611, to sections 12 and 14 shall be taxable to the same extent as such 1613. revenues or proceeds are taxable when received by a non-Native individual or corporation. "Oi)(l) Notwithstanding any other provision of law, each Native Corporation established pursuant to this Act shall be deemed to have become engaged in carrying on a trade or business as of the date it was incorporated for purposes of any form of Federal, State, or local taxation. "(2) All expenses heretofore or hereafter paid or incurred by a Native Corporation established pursuant to this Act in connection with the selection or conveyance of lands pursuant to this Act, or in assisting another Native Corporation within or for the same region in the selection or conveyance of lands under this Act, shall be deemed to be or to have been ordinary and necessary expenses of such Corporation, paid or incurred in carrying on a trade or business for purposes of any form of Federal, State, or local taxation." "(i) PERSONAL HOLDING COMPANY ACT EXEMPTION.—No Corpora- tion created pursuant to the Alaska Native Claims Settlement Act shall be considered to be a personal holding company within the 26 use 542. meaning of section 542(a) of the Internal Revenue Code of 1954 prior to January 1,1992." SEC. 542. REPLACEMENT OF LIVESTOCK WITH OTHER FARM PROPERTY WHERE THERE HAS BEEN ENVIRONMENTAL CONTAMINA- TION. 26 use 1033. (a) IN GENERAL.—Section 1033 (relating to involuntary conversions) is amended by redesignating subsections (f) and (g) £is subsections (g) and (h), respectively, and by inserting after subsection (e) the follow- ing new subsection: "(f) REPLACEMENT OF LIVESTOCK WITH OTHER FARM PROPERTY WHERE THERE HAS BEEN ENVIRONMENTAL CONTAMINATION.—For purposes of subsection (a), if, because of soil contamination or other environmental contamination, it is not feasible for the taxpayer to reinvest the proceeds from compulsorily or involuntarily converted livestock in property similar or related in use to the livestock so converted, other property (including real property) used for farming purposes shall be treated as property similar or related in service or use to the livestock so converted. 26 use 1033 (b) EFFECTIVE DATE.—The amendments made by subsection (a) note. shall apply with respect to taxable years beginning after December 31,1974. SEC. 543. CERTAIN PAYMENTS NOT INCLUDED IN GROSS INCOME. (a) I N GENERAL.—Part III of subchapter B of chapter 1 (relating to items specifically excluded from gross income) is amended by redesig-
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2889 nating section 126 as 127 and by inserting immediately after section 26 use 127. 125 the following new section; "SEC. 126. CERTAIN COST-SHARING PAYMENTS. 26 USC 126. "(a) GENERAL RULE.—Gross income does not include the excludable portion of payments received under— "(1) The rural clean water program authorized by section 208(j) of the Federal Water Pollution Control Act (33 U.S.C. 1288(j)). "(2) The rural abandoned mine program authorized by section 406 of the Surface Mining Control and Reclamation Act of 1977 (30 U.S.C. 1236). "(3) The water bank program authorized by the Water Bank Act (16 U.S.C. 1301 etseq.). "(4) The emergency conservation measures program author- ized by title IV of the Agricultural Credit Act of 1978. Ante, p. 433. "(5) The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act (16 U.S.C. 590a). "(6) The great plains conservation program authorized by section 16 of the Soil Conservation and Domestic Policy Act (16 U.S.C. 590p(b)). "(7) The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act (7 U.S.C. 1010; 16 U.S.C. 590a etseq.). "(8) The forestry incentives program authorized by section 4 of the Cooperative Forestry Assistance Act of 1978 (16 U.S.C. 2103). Ante, p. 367. "(9) Any small watershed program administered by the Secre- tary of Agriculture which is determined by the Secretary of the Treasury to be substantially similar to the type of programs described in paragraphs (1) through (8). "(10) Any State program under which payments are made to individuals primarily for the purpose of conserving soil, protect- ing or restoring the environment, improving forests, or providing a habitat for wildlife. "(b) EXCLUDABLE PORTION.—For purposes of this section, the term 'excludable portion'means that portion (or all) of a payment made to any person under any program described in subsection (a) which— "(1) is determined by the Secretary of Agriculture to be made primarily for the purpose of conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife, and "(2) is determined by the Secretary of the Treasury as not increasing substantially the annual income derived from the property. "(c) APPUCATION WITH OTHER SECTIONS.—No deduction or credit allowable under any other provision of this chapter shall be allowed with respect to any expenditure made with the use of payments described in subsection (a) or with respect to any property acquired with any payment described in subsection (a) (to the extent that the basis is allocable to the use of such payments). Notwithstanding any provision of section 1016 to the contrary, no adjustment to basis shall 26 USC 1016. be made with respect to property acquired through the use of such payments, to the extent that such adjustment would reflect the amount of such payment." i (b) CLERICAL AMENDMENT.—The table of sections for such part is amended by striking out the last item and inserting in lieu thereof the following: 39-194 O—80—pt. 3 17 : QL3
92 STAT. 2890 PUBLIC LAW 95-600—NOV. 6, 1978 "Sec. 126. Certain cost-sharing payments. . "Sec. 127. Cross references to other Acts." (c) RECAPTURE OF GAIN FROM DISPOSITION OF PROPERTY.— (1) Part IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by adding at the end thereof the following: 26 u s e 1255. "SEC. 1255. GAIN FROM DISPOSITION OF SECTION 126 PROPERTY. "(a) GENERAL RULE.— "(1) ORDINARY INCOME.—Except as otherwise provided in this Ante, p. 2889. section, if section 126 property is disposed of, the lower of— "(A) the applicable percentage of the aggregate payinents, with respect to such property, excluded from gross income under section 126, or > f .^ "(B) the excess of— "(i) the amount realized (in the case of a sale, ex- change, or involuntary conversion), or the fair market value of such section 126 property (in the case of any other disposition), over "(ii) the adjusted basis of such property shall be treated as ordinary income. "(2) SECTION 126 PROPERTY.—For purposes of this section, 'section 126 property' means any property acquired, improved, or otherwise modified by the application of payments excluded from gross income under section 126. "(3) APPUCABLE PERCENTAGE,—For purposes of this section, if section 126 property is disposed of less than 10 years after the date of receipt of payments excluded from gross income under section 126, the applicable percentage is 100 percent. If section ' 126 property is disposed of more than 10 years after such date, the applicable percentage is 100 percent reduced (but not below zero) by 10 percent for each year or part thereof in excess of 10 years such property was held after the date of receipt of the payments. "(b) SPECIAL RULES.—Under regulations prescribed by the Secretary— 26 use 1245. "(1) rules similar to the rules applicable under section 1245 shall be applied for purposes of this section, aiid "(2) amounts treated as ordinary income under this section shall be treated in the same manner as amounts treated as ordinary income under section 1245." (2) The table of sections for such part is amended by adding at the end thereof the following new item: "Sec. 1255. Gain from disposition of section 126 property." 26 use 126 (d) EFFECTIVE DATE.—The amendments made by this section shall note. apply with respect to grants made under the programs after Septem- ber 30,1979. Subtitle F—Studies SEC. 551. STUDY OF SIMPLIFICATION OF TAX RETURNS. 26 use 6011 (a) STUDY.—The Secretary of the Treasury shall conduct a full and note. complete study and investigation with respect to— (1) provisions of the Internal Revenue Code of 1954 which, due to their complexity, may hamper the ability of individuals to prepare accurate and complete Federal income tax returns, and
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2891 (2) methods of simplifying Federal income tax return forms and instructions accompanying such forms. (b) TASK FORCE.— (1) I N GENERAL.—The Secretary of the Treasury shall establish a task force to assist him in the conduct of the study and investigation under subsection (a). (2) REPORTS OF TASK FORCE.—The task force shall report from time to time on its progress directly to the Secretary and shall submit a final report to the Secretary which includes its findings with respect to such study and investigation and any recommen- dations with respect thereto. Such f i n ^ report shall be submitted by such time as is necessary to enable the Secretary to file the report called for in subsection (c) of this section. (3) AUTHORITY TO HIRE.—The Secretary is authorized to appoint such employees, not in excess of 10, as may be necessary to carry out the functions of the task force without regard to the provi- sions of chapter 51 and subchapter III of chapter 53 of title 5, 5 use 5ioi, United States Code, except that such employees shall not be paid ^^^^ ^' ^^9 at a rate in excess of the annual rate of pay under grade GS-18 of the General Schedule under section 5332 of such title 5. (c) REPORT.—The Secretary, after studying the reports and recom- mendations of the task force under subsection (b), shall, not later than 2 years after the date of the enactment of this Act, submit to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives a final report on the study and investigation conducted under this section, together with such recom- mendations for legislation as he finds necessary. SEC. 552. STUDY OF TAX INCENTIVES FOR EXPENDITURES REQUIRED BY OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION AND MINING HEALTH AND SAFETY ADMINISTRATION. (a) STUDY.—The Secretary of the Treasury shall make a full and 26 use 7801. complete study and investigation with respect to the appropriateness of providing additional tax incentives for expenditures required by the Occupational Safety and Health Act (OSHA) and the Mining 29 use 651 Safety and Health Administration (MSHA) of the Department of "o^^. Labor. 0)) REPORT.—Before April 1, 1979, the Secretary of the Treasury shall submit to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives a report of its study and investigation together with its recommenda- tions for legislation. SEC. 553. STUDY OP TAXATION OF NONRESIDENT ALIEN REAL ESTATE TRANSACTIONS IN THE UNITED STATES. (a) STUDY.—The Secretary of the Treasury shall make a full and 26 use 7801 complete study and analysis of the appropriate tax treatment to be "o*^^- given to income derived from, or gain realized on, the sale of interests in United States property held by nonresident aliens or foreign corporations. (b) REPORT.—The Secretary of the Treasury shall submit to the Committee on Finance of the Senate and the Committee on Ways and Mesuis of the House of Representatives a final report of its study, together with its recommendations, no later than 6 months from the date of enactment of this Act.
92 STAT. 2892 PUBLIC LAW 95-600—NOV. 6, 1978 26 u s e 50A SEC. 554. REPORT ON EFFECTIVENESS OF JOBS CREDIT. "°*^' (a) REPORT ON TARGETED JOBS CREDIT.—Not later than June 30, 1981, the Secretary of the Treasury and the Secretary of Labor shall jointly submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a report on— (1) the effectiveness of the targeted jobs credit provided by the amendments made by this section in improving the employment situation of the targeted groups, and (2) the types of employers claiming such credit. (b) GENERAL JOBS CREDIT.—The report required under paragraph (1) shall also include an evaluation of— (1) the effectiveness of the general jobs credit provided by Ante, p. 2834. section 44B of the Internal Revenue Code of 1954 for 1977 and 1978 in stimulating employment and enhancing economic growth, and (2) the types of employers claiming such credit. SEC. 555. STUDY OF EFFECTS OF CHANGES IN THE TAX TREATMENT OF CAPITAL GAINS ON STIMULATING INVESTMENT AND ECO- NOMIC GROWTH. 26 use 1201 Not later than September 30, 1981, the Secretary of the Treasury note. shall submit to the Committee on Ways and Means of the House of Representatives and to the Committee on Finance of the Senate a report on the effectiveness of the changes made by this title in the tax treatment of capital gains of individuals and corporations in stimu- lating investment and increasing the rate of economic growth. The report shall also include an analysis of the effects these changes had on employment growth and on income tax revenues. TITLE VI—GENERAL STOCK OWNERSHIP CORPORATIONS SEC. 601. ESTABLISHMENT AND TAXATION OF GENERAL STOCK OWNER- SHIP CORPORATIONS AND THEIR SHAREHOLDERS. (a) IN GENERAL.—Chapter 1 (relating to normal taxes and surtaxes) is amended by adding at the end thereof the following new subchapter: "Subchapter U—General Stock Ownership Corporations "Sec. 1391. Definitions. "Sec. 1392. Election by general stock ownership corporation. "Sec. 1393. Corporation taxable income taxed to shareholders. "Sec. 1394. Rules applicable to distributions of electing genered stock owner- ship corporations. "Sec. 1395. Adjustments to basis of stock of shareholders. "Sec. 1396. Minimum distribution. "Sec. 1397. Special rules applicable to earnings and profits of an electing general stock ownership plan. 26 u s e 1391. "SEC. 1391. DEFINITIONS. "(a) GENERAL STOCK OWNERSHIP CORPORATION.—For purposes of this subchapter, the term 'general stock ownership corporation'
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2893 (hereinafter referred to as a *GSOC') means a domestic corporation which— "(1) is not a member of an affiliated group (as defined in section 1504), and 26 USC 1504. "(2) is chartered and organized after December 31, 1978, and before January 1,1984; "(3) is chartered by an act of a State legislature or as a result of a State-wide referendum; * '(4) has a charter providing— "(A) for the issuance of only 1 class of stocks, "(B) for the issuance of shares only to eligible individuals (as defined in subsection (c)); "(C) for the issuance of at least one share to each eligible individual, unless such eligible individual elects within one year after the date of issuance not to receive such share; "(D) that no share of stock shall be transferable— "(i) by a shareholder other than by will or the laws of descent and distribution until after the expiration of 5 years from the date such stock is issued by the GSOC except where the shareholder ceases to be a resident of the State; "(ii) to any person other than a resident individual of the chartering State; "(iii) to any individual who, after the transfer, would own more than 10 shares of the GSOC; "(E) that such corporation shall qualify as a GSOC under the Internal Revenue Code; "(5) is empowered to invest in properties (but not in properties acquired by it or for its benefit through the right of eminent domain). For purposes of this subsection, section 1504(a) shall be applied by substituting '20 percent' for '80 percent' wherever it appears. "(b) ELECTING GSOC.—For purposes of this subchapter, the term 'electing GSOC means a GSOC which files an election under section 1392 which, under section 1392, is in effect for such taxable year. "(c) ELIGIBLE INDIVIDUALS.—For purposes of subsection (a), the term 'eligible individual' means an individual who is, as of a date specified in the State's enabling legislation for the GSOC, a resident of the chartering State and who remains a resident of such State between that date and the date of issuance. "(d) TREATED AS PRIVATE CORPORATION.—For purposes of this title, a GSOC shall be treated as a private corporation and not as a governmental unit. "(e) STUDY OF GENERAL STOCK OWNERSHIP CORPORATIONS.—The staff of the Joint Committee on Taxation shall prepare a report on the operation and effects of this subchapter relating to GSOC's. An interim report shall be filed within two years after the first GSOC is formed and a final report shall be filed by September 30, 1983. "SEC. 1392. ELECTION BY GSOC. 26 USC 1392. "(a) ELIGIBILITY.—Except as provided in section 1393, any GSOC 26 use 1393. may elect, in accordance with the provisions of this section, not to be subject to the taxes imposed by this chapter. "(b) EFFECT.—If a GSOC makes an election under subsection (a) then— "(1) with respect to the taxable years of the GSOC for which such election is in effect, such corporation shall not be subject to the taxes imposed by this chapter and, with respect to such
92 STAT. 2894 PUBLIC LAW 95-600—NOV. 6, 1978 n oo«r taxable years and all succeeding taxable years, the provisions of Post, p. 2895. section 1396 shall apply to such GSOC, and "(2) with respect to each such taxable year, the provisions of Infra. sections 1393, 1394, and 1395 shall apply to the shareholders of /'o5<, p. 2895. such GSOC. "(c) WHERE AND HOW MADE.—An election under subsection (a) may be made by a GSOC at such time and in such manner as the Secretary shall prescribe by regulations. "(d) YEARS FOR WHICH EFFECTIVE.—An election under subsection (a) shall be effective for the taxable year of the GSOC for which it is made and for all succeeding taxable years of the GSOC, unless it is terminated under subsection (f). "(e) TAXABLE YEAR.—The taxable year of a GSOC shall end on October 31 unless the Secretary consents to a different taxable year.". "(f) TERMINATION.—The election of a GSOC under subsection (a) shall terminate for any taxable year during which it ceases to be a GSOC and for all succeeding taxable years. The election of a GSOC under subsection (a) may be terminated at any other time with the consent of the Secretary, effective for the first tgixable year with respect to which the Secretary consents and for all succeeding taxable years. 26 u s e 1393. "SEC. 1393. GSOC TAXABLE INCOME TAXED TO SHAREHOLDERS. "(a) GENERAL RULE.—The taxable income of an electing GSOC for any tsixable year shall be included in the gross income of the shareholders of such GSOC in the manner and to the extent set forth in this subsection. "(1) AMOUNT INCLUDED IN GROSS INCOME.—Each shareholder of ^ an electing GSOC on any day of a taxable year of such GSOC shall include in his gross income for the taxable year with or within which the taxable year of the GSOC ends the amount he would have received if, on each day of such taxable year, there had been distributed pro rata to its shareholders by such GSOC an amount equal to the taxable income of the GSOC for its taxable year divided by the number of days in the GSOC's taxable year. "(2) TAXABLE INCOME DEFINED.—For purposes of this section, the term 'taxable income' of a GSOC shall be determined without regard to the deductions allowed by part VIII of subchapter B 26 use 248. (other than deductions allowed by section 248, relating to organi- zational expenditures). "(b) SPECIAL RULE FOR INVESTMENT CREDIT.—The investment credit of an electing GSOC for any taxable year shall be allowed as a credit to the shareholders of such corporation in the manner and to the extent set forth in this subsection. "(1) CREDIT.—There shall be apportioned among the sharehold- ers a credit equal to the amount each shareholder would have received if, on each day of such taxable year, there had been distributed pro rata to the shareholders the electing GSOC's net investment credit divided by the number of days in the GSOC's taxable year. "(2) NET INVESTMENT CREDIT.—For purposes of this paragraph the term 'net investment credit' means the investment credit of the electing GSOC for its taxable year less any tax from recom- puting a prior year's investment credit in accordance with 26 use 47. section 47. "(3) RECAPTURE.—There shall be apportioned among the share- holders of a GSOC, in the manner described in paragraph (1), an
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2895 additional tax equal to the excess of any tax resulting from recomputing a prior year's investment credit in accordance with section 47 over the investment credit of the GSOC for its taxable 26 use 47. year. "SEC. 1394. RULES APPLICABLE TO DISTRIBUTIONS OF AN ELECTING 26 USC 1394. GSOCs. "(a) SHAREHOLDER INCOME ACCOUNT.—An electing GSOC shall establish and maintain a shareholder income account which account shall be— "(1) increased at the close of the GSOCs taxable year by an amount equal to the GSOC's taxable income for such year, and "(2) decreased, but not below zero, on the first day of the GSOC's taxable year by the amount of any GSOC distribution to the shareholders of such GSOC made or treated as made during the prior taxable year. "Ob) TAXATION OF DISTRIBUTIONS.—Distributions by an electing GSOC shall be treated as— "(1) a distribution of previously taxed income to the extent such distribution does not exceed the balance of the shareholder income account as of the close of the taxable year of the GSOC, and "(2) a distribution to which section 301(a) applies but only to 26 USC 301. the extent such distribution exceeds the balance of the share- holder income account as of the close of the taxable year of the GSOC. "(c) DISTRIBUTIONS NOT TREATED AS A DIVIDEND.—Any amounts includible in the gross income of any individual by reason of owner- ship of stock in a GSOC shall not be considered as a dividend for purposes of section 116. 26 USC 116. "(d) REGULATIONS.—The Secretary shall have authority to pre- scribe by regulation, rules for treatment of distributions in respect of shares of stock of the GSOC that have been transferred during the taxable year.". "SEC. 1395. ADJUSTMENT TO BASIS OF STOCK OF SHAREHOLDERS. 26 USC 1395. "The basis of a shareholder's stock in an electing GSOC shall be increased by the amount includible in the gross income of such shareholder under section 1393, but only to the extent to which such Ante, p. 2894. amount is actually included in the gross income of such shareholder. "SEC. 1396. MINIMUM DISTRIBUTIONS. 26 USC 1396. "(a) GENERAL RULE.—A GSOC shall distribute at least 90 percent of its taxable income for any taxable year by January 31 following the close of such taxable year. Any distribution made on or before January 31 shall be treated as made as of the close of the preceding taxable year. "(b) IMPOSITION OF TAX IN CASE OF FAILURE TO MAKE MINIMUM DISTRIBUTIONS.—If a GSOC fails to make the minimum distribution requirements described in subsection (a), there is hereby imposed a tax equal to 20 percent of the excess of the amount required to be distributed over the amount actually distributed. "SEC. 1397. SPECIAL RULES APPLICABLE TO AN ELECTING GSOC. 26 USC 1397. "(a) GENERAL RULE.—The current earnings and profits of an electing GSOC as of the close of its taxable year shall not include the amount of taxable income for such year which is required to be
92 STAT. 2896 PUBLIC LAW 95-600—NOV. 6, 1978 included in the gross income of the shareholders of such GSOC under Ante, p. 2894. section 1393(a). "(b) SPECIAL RULE FOR AUDIT ADJUSTMENTS.— "(1) TAXABLE INCOME.—Taxable income of an electing GSOC shall, in the year of final determination, be increased or decreased, as the case might be, by any adjustment to taxable income for a prior taxable year. "(2) INVESTMENT CREDIT.—The net investment credit of an electing GSOC shall, in the year of final determination, be increased or decreased, as the case might be, by any adjustment to the net investment credit for a prior taxable year. "(3) METHOD OF MAKING ADJUSTMENTS.—An electing GSOC shall include in gross income for the year of an adjustment the amount described in paragraph (1) and shall take into account the adjustment described in paragraph (2), and shall be liable for payment of interest in the amount that would have been payable 26 use 6601. by the GSOC under section 6601 (relating to interest on under- payment, nonpayment or extensions of time for payment, of tax) 26 use 6611. or receivable by the GSOC under section 6611 (relating to interest on overpayments) if such GSOC had been a corporation other than an electing GSOC." (b) TECHNICAL AMENDMENTS.— (1) NET OPERATING LOSS DEDUCTION.—Paragraph (1) of section 26 use 172. 172(b) (relating to net operating loss carrybacks and carryovers) is amended by adding at the end thereof the following new subparagraph: "(H) In the case of an electing GSOC which has a net operating loss for any taxable year such loss shall not be a net operating loss carryback to any taxable year preceding the year of such loss, but shall be a net operating loss carryover to each of the 10 taxable years following the year of such loss." 26 use 3402. (2) INCOME TAX COLLECTED AT SOURCE.—Section 3402 (relating to income collected at source) is amended by adding at the end thereof the following new subsection: "(r) EXTENSION OF WITHHOLDING TO GSOC DISTRIBUTIONS.— "(1) GENERAL RULE.—An electing GSOC making any distribu- tion to its shareholders shall deduct and withhold from such payment a tax in an amount equal to 25 percent of such payment. "(2) COORDINATION WITH OTHER SECTIONS.—For purposes of 26 use 3403, sections 3403 and 3404 and for purposes of so much of subtitle F 3404. (except section 7205) as relates to this chapter, distributions of an 26 use 7205. electing GSOC to any shareholder which are subject to withhold- ing shall be treated as if they were wages paid by an employer to an employee." 26 use 1016. (3) ADJUSTMENTS TO BASIS.—Section 1016(a) (relating to adjust- ments of basis) is amended by redesignating paragraph (23) as (22) and by inserting after paragraph (20) the following new paragraph: Ante, p. 2895. "(21) to the extent provided in section 1395 in the case of stock of shareholders of a general stock ownership corporation (as Ante, p. 2892. defined in section 1391) which makes the election provided by Ante, p. 2893. section 1392; and". (4) RETURN OF GENERAL STOCK OWNERSHIP CORPORATION.— 26 use 6031. Subpart A of part III of subchapter A of chapter 61 (relating to information returns) is amended by adding at the end thereof the following new section:
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2897 "SEC. 6039B. RETURN OF GENERAL STOCK OWNERSHIP CORPORATION. 26 USC 6039B. "Every general stock ownership corporation (as defined in section 1391) which makes the election provided by section 1392 shall make a 26 USC 1391, return for each taxable year, stating specifically the items of its gross 1392. income and the deductions allowable by subtitle A, the amount of investment credit or additional tax, as the case may be, the names and addresses of all persons owning stock in the corporation at any time during the taxable year, the number of shares of stock owned by each shareholder at all times during the taxable year, the amount of money and other property distributed by the corporation during the taxable year to each shareholder, the date of each such distribution, and such other information, for the purpose of carrying out the provisions of subchapter U of chapter 1, as the Secretary may by regulation prescribe. Any return filed pursuant to this section shall, for purposes of chapter 66 (relating to limitations), be treated as a 26 USC 6501 et return filed by the corporation under section 6012. Eveiy GSOC shall 26 USC 6012. file an annual report with the Secretary summarizing its operations for such year." (c) CLERICAL AMENDMENTS.— (1) The table of subchapters for chapter 1 is amended by adding at the end thereof the following: "SUBCHAPTER U.—General stock ownership plans." (2) The table of sections for subpart A of part III of subchapter A of chapter 61 is amended by adding at the end thereof the following: "Sec. 6039B. Return of general stock ownership corporation." (d) EFFECTIVE DATE.—The amendments made by this section shall ^6 USC 1391 apply with respect to corporations chartered after December 31,1978, "*^^^- and before January 1,1984. s: TITLE VII—TECHNICAL CORRECTIONS OF THE TAX REFORM ACT OF 1976 SEC. 701. TECHNICAL AMENDMENTS TO INCOME TAX PROVISIONS AND ADMINISTRATIVE PROVISIONS. (a) AMENDMENTS RELATING TO RETENTION OF PRIOR LAW FOR RETIREMENT INCOME CREDIT UNDER SECTION 37(e).— 26 USC 37. (1) CLARIFICATION THAT SPOUSE UNDER AGE 65 MUST HAVE PUBUC RETIREMENT SYSTEM INCOME.—Paragraph (2) of section 37(e) (relating to election of prior law with respect to public retirement system income) is amended by striking out "who has not attained age 65 before the close of the taxable year" and inserting in lieu thereof "who has not attained age 65 before the close of the taxable year (and whose gross income includes income described in paragraph (4)(B))". (2) CLARIFICATION THAT QUAUFYING SERVICES MUST HAVE BEEN PERFORMED BY TAXPAYER OR SPOUSE.—Subparagraph (B) of sec- tion 37(e)(4) (defining retirement income) is amended by inserting "and who performed the services giving rise to the pension or annuity (or is the spouse of the individuEil who performed the services)" after "before the close of the taxable year". (3) DISREGARD OF COMMUNITY PROPERTY LAWS.—Subsection (c) of section 37 (relating to election of prior law with respect to public retirement system income) is amended—
92 STAT. 2898 PUBLIC LAW 95-600—NOV. 6, 1978 (A) by redesignating paragraph (8) as paragraph (9) and by inserting after paragraph (7) the following new paragraph: "(8) COMMUNITY PROPERTY LAWS NOT APPLICABLE.—In the case of a joint return, this subsection shall be applied without regard to community property laws.", (B) by striking out "paragraph (8)(A)" in paragraph (4)(B) and inserting in lieu thereof "paragraph (9)(A)"; and (C) by striking out "paragraph (8)(B)" in paragraph (5)(B) and inserting in lieu thereof "paragraph (9)(B>". 26 u s e 37 note. (4) EFFECTIVE DATES.— (A) The amendments made by paragraphs (1) and (2) shall apply to taxable years beginning after December 31, 1975. (B) The amendments made by paragraph (3) shall apply to teixable years beginning after December 31,1977. (b) AMENDMENTS RELATING TO THE MINIMUM TAX.— 26 u s e 57. (1) SPECIAL RULES FOR MINIMUM TAX I N THE CASE OF SUB- CHAPTERS CORPORATIONS AND PERSONAL HOLDING COMPANIES.— (A) Paragraph (1) of section 57(a) (relating to adjusted itemized deductions) is amended by striking out "An amount" and inserting in lieu thereof "In the case of an individual, an amount". (B) The last sentence of section 57(a) (relating to items of tax preference) is amended by striking out "Paragraphs (1), (3), and" and inserting in lieu thereof "Paragraphs (3) and". 26 use 58. (2) DIVISION OF $IO,OOO AMOUNT AMONG MEMBERS OP CON- TROLLED GROUPS.—Subsection (b) of section 58 (relating to mem- bers of controlled groups) is amended to read as follows: "(b) MEMBERS OF CONTROLLED GROUPS.—In the case of a controlled 26 use 1563. group of corporations (as defined in section 1563(a)), the $10,000 26 use 56. amount specified in section 56 shall be divided among the component members of such group in proportion to their respective regular tax deductions (within the meaning of section 56(c)) for the taxable year." (3) COMPUTATION OF ADJUSTED ITEMIZED DEDUCTIONS IN THE 26 use 57. CASE OF ESTATES AND TRUSTS.—Paragraph (2) of section 57(b) (relating to computation of adjusted itemized deductions in the case of estates and trusts) is amended to read as follows: "(2) SPECIAL RULES FOR ESTATES AND TRUSTS.— "(A) IN GENERAL.—In the case of an estate or trust, for purposes of paragraph (1) of subsection (a), the amount of the adjusted itemized deductions for any taxable year is the amount by which the sum of the deductions for the taxable year other than— "(i) the deductions allowable in arriving at adjusted gross income, "(ii) the deduction for personal exemption provided by 26 use 642. section 642(b), "(iii) the deduction for casualty losses described in 26 use 165. section 165(c)(3), 26 use 651. "(iv) the deductions allowable under section 651(a), 26 use 661, 661(a), or 691(c), and 691- "(v) the deductions allowable to a trust under section 26 use 642. 642(c) to the extent that a corresponding amount is included in the gross income of the beneficiary under 26 use 662. section 662(a)(1) for the taxable year of the beneficiary with which or within which the tEixable year of the trusts ends,
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2899 exceeds 60 percent (but does not exceed 100 percent) of the adjusted gross income of the estate or trust for the taxable year. "(B) DETERMINATION OF ADJUSTED GROSS INCOME,—For purposes of this paragraph, the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that— "(i) the deductions for costs paid or incurred in connec- tion with the administration of the estate or trust, and "(ii) to the extent provided in subparagraph (C), the deductions under section 642(c), 26 USC 642. shall be treated as allowable in arriving at adjusted gross income. "(C) TREATMENT OF CERTAIN CHARITABLE CONTRIBUTIONS.— For purposes of this paragraph, the following deductions under section 642(c) (relating to deductions for amounts paid or permanently set aside for charitable purposes) shall be treated as deductions allowable in arriving at adjusted gross income: "(i) deductions allowable to an estate, "(ii) deductions allowable to a trust all of the unex- pired interests in which are devoted to one or more of the purposes described in section 170(c)(2)(B), 26 USC 170. "(iii) deductions allowable to a trust which is a pooled income fund within the meaning of section 642(c)(5), "(iv) deductions allowable to a trust which are attrib- utable to transfers to the trust before January 1, 1977, and "(v) deductions allowable to a trust, all of the income interest of which is devoted solely to one or more of the purposes described in section 170(c)(2)(B), which are attributable to transfers pursuant to a will or pursuant to an inter vivos trust in which the grantor had the power to revoke at the date of his death." (4) SECTION 691(C) DEDUCTION NOT TAKEN INTO ACCOUNT FOR 26 USC 57. DETERMINING ADJUSTED ITEMIZED DEDUCTIONS.—Paragraph (1) of section 57(b) is amended by striking out "and" at the end of subparagraph (C), by inserting "and" at the end of subparagraph (D), and by inserting after subpar£igraph (D) the following new subparagraph: "(E) the deduction allowable under section 691(c),". 26 USC 691. (5) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 57 note. shall take effect as if included in the amendments made by section 301 of the Tax Reform Act of 1976. 26 USC 301. (c) SICK PAY.— (1) IN GENERAL.—Section 105(d) is amended by striking out 26 USC 105. paragraphs (4) and (6), by redesignating paragraph (5) as para- graph (4) and paragraph (7) as paragraph (6), and by inserting after paragraph (4) the following new paragraph: "(5) SPECIAL RULES FOR MARRIED COUPLES.— "(A) MARRIED COUPLE MUST FILE JOINT RETURN.—Except in the case of a husband and wife who live apart at all times during the taxable year, if the taxpayer is married at the close of the taxable year, the exclusion provided by this subsection shall be allowed only if the taxpayer and his spouse file a joint return for the taxable year.
92 STAT. 2900 PUBLIC LAW 95-600—NOV. 6, 1978 "(B) APPLICATION OF PARAGRAPHS (2) AND (3).—In the case of a joint return— "(i) paragraph (2) shall be applied separately with respect to each spouse, but "(ii) paragraph (S) shall be applied with respect to their combined adjusted gross income. "(C) DETERMINATION OF MARITAL STATUS.—For purposes of this subsection, marital status shall be determined under 26 use 143. section 143(a). "(D) JOINT RETURN DEFINED.—For purposes of this subsec- tion, the term 'joint return' means the joint return of a 26 use 6013. husband and wife made;under section 6013." 26 use 105 (2) CONFORMING AMENDMPNTS.-^ note. (A) Subsection (c)(3) of section 505 of the Tax Reform Act of 26 use 505. 1976 (relating to disability retirement) is amended by strik- 26 use 105. ing out "section 105(d)(5)" and inserting in lieu thereof "section 105(d)(4)". 26 use 105 (B) Subsections (c) and (e)(1) of section 301 of the Tax note. Reduction and Simplification Act of 1977 (relating to effec- tive date of changes in the exclusion for sick pay) are each 26 u s e 105. amended by striking out "section 105(d)(7)" and inserting in lieu thereof "section 105(d)(6)". 26 u s e 105 (3) EFFECTIVE DATE.— note. (A) The amendments made by paragraphs (1) and (2)(A) shall take effect as if included in section 105(d) of the 26 u s e 105. Internal Revenue Code of 1954 as such section was amended 26 u s e 505. by section 505(a) of the Tax Reform Act of 1976. (B) The amendments made by paragraph (2)(B) shall take effect as if included in section 301 of the Tax Reduction and 26 u s e 105 Simplification Act of 1977. notes. (d) NET OPERATING LOSSES.— 26 u s e 172. (1) AMENDMENT OF SECTION 172(b)(1)(B).—The second sentence of subparagraph (B) of section 1720b)(l) (relating to years to which net operating losses may be carried) is amended by striking out "and (F)" and inserting in lieu thereof "(F), and (G)'\ 26 u s e 172 (2) EFFECTIVE DATE.—The amendment made by paragraph (1) note. shall apply to losses incurred in taxable years ending after December 31,1975. 26 u s e 189 (e) EFFECTIVE DATE FOR FISCAL YEAR TAXPAYERS FOR CONSTRUCTION note. PERIOD INTEREST AND TAXES.—Paragraph (1) of section 201(c) of the 26 u s e 201. Tax Reform Act of 1976 is amended to read as follows: "(1) in the case of nonresidential real property, if the construc- tion period begins on or after the first day of the first taxable year beginning after December 31,1975,". (f) CLARIFICATION OF PROVISIONS PROVIDING TAX INCENTIVES TO ENCOURAGE THE PRESERVATION OF HISTORIC STRUCTURES.— (1) DEFINITION OF CERTIFIED HISTORIC STRUCTURES.—Subsection 26 u s e 191. (d) of section 191 (relating to amortization of certain rehabilita- tion expenditures for certified historic structures) is amended by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by striking out paragraph (1) and inserting in lieu thereof the following new paragraphs: "(1) CERTIFIED HISTORIC STRUCTURE.—The term 'certified his- toric structure' means a building or structure which is of a character subject to the allowance for depreciation provided in 26 u s e 167. section 167 and which— "(A) is listed in the National Register, or
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2901 "(B) is located in a registered historic district and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district. "(2) REGISTERED HISTORIC DISTRICT.—The term 'registered his- toric district' means— "(A) any district listed in the National Register, and "(B) any district— "(i) which is designated under a statute of the appro- priate State or local government, if such statute is certified by the Secretary of the Interior to the Secre- tary as containing criteria which will substantially achieve the purpose of preserving and rehabilitating buildings of historic significance to the district, and "(ii) which is certified by the Secretary of the Interior to the Secretary as meeting substantially all of the requirements for the listing of districts in the National Register." (2) AMENDMENT OF CROSS REFERENCES.—Subsection (g) of sec- tion 191 (relating to cross references) is amended to read as 26 USC 191. follows: "(g) CROSS REFERENCES.— "(1) For rules relating to the listing of buildings, structures, and his- toric districts in the National Register, see the Act entitled 'An Act to es- tablish a program for the preservation of additional historic properties throughout the Nation, and for other purposes', approved October 15, 1966 (16 U.S.C. 470 et seq.). "(2) For special rules with respect to certain gain derived from the dis- position of property the adjusted basis of which is determined with regard to this section, see sections 1245 and 1250." (3) SPECIAL RULES FOR RECAPTURE OF AMORTIZATION DEDUC- TION.— (A) Paragraph (2) of section 1245(a) (relating to gain from 26 USC 1245. dispositions of certain depreciable property) is amended— (i) by striking out "190, or 191" the first place it appears and inserting in lieu thereof "or 190" and (ii) by striking out "190, or 191" the second and third place it appears and inserting in lieu thereof "190, or (in the case of property described in paragraph (3)(C)) 191". (B) Subparagraph (D) of section 1245(a)(3) (relating to gain from dispositions of certain depreciable property) is amended by striking out "190, or 191" and inserting in lieu thereof "or 190". (C) Paragraph (3) of section 1250(b) (relating to depreci- 26 USC 1250. ation adjustments) is amended by striking out "190 or 191" and inserting in lieu thereof "or 190". (D) Paragraph (2) of section 57(a) (relating to items of tax 26 USC 57. preference) is amended by inserting "or 191" after "167(k)". (E) Paragraph (4) of section 1250(b) (relating to definition of additional depreciation) is amended— (i) by inserting "or amortization" after "depreciation" the second and third places it appears, and (ii) by inserting "or 191" after "167(k)" each place it appears. (4) STRAIGHT LINE METHOD IN CERTAIN CASES.—Subsection (n) of section 167 is amended to read as follows: 26 USC 167. "(n) STRAIGHT LINE METHOD IN CERTAIN CASES.— "(1) I N GENERAL.—In the case of any property in whole or in part constructed, reconstructed, erected, or used on a site which
92 STAT. 2902 PUBLIC LAW 95-600—NOV. 6, 1978 was, on or after June 30, 1976, occupied by a certified historic structure (or by any structure in a registered historic district) which is demolished or substantially altered after such date— "(A) subsections (b), (j), (k), and (1) shall not apply, and "(B) the term 'reasonable allowance' as used in subsection (a) means only an allowance computed under the straight line method. The preceding sentence shall not apply if the last substantial alteration of the structure is a certified rehabilitation. "(2) EXCEPTIONS.—The limitations imposed by this subsection shall not apply— "(A) to personal property, and "(B) in the case of demolition or substantial alteration of a structure located in a registered historic district, if— "(i) such structure was not a certified historic structure, "(ii) the Secretary of the Interior certified to the Secretary that such structure is not of historic signifi- cance to the district, and "(iii) if the certification referred to in clause (ii) occurs after the beginning of the demolition or substantial alteration of such structure, the taxpayer certifies to the Secretary that, at the beginning of such demolition or substantial alteration, he in good faith was not aware of the requirements of clause (ii). "(3) DEFINITIONS.—For purposes of this subsection, the terms 'certified historic structure', 'registered historic district', and 'certified rehabilitation' have the respective meanings given 26 use 191. such terms by section 191(d)." (5) DEMOLITION OF CERTAIN HISTORIC STRUCTURES.—Subsection (b) of section 280B (relating to special rule for registered historic districts) is amended to read as follows: 26 u s e 280B. "(b) SPECIAL RULE FOR REGISTERED HISTORIC DISTRICTS.—For pur- poses of this section, any building or other structure located in a 26 use 191. registered historic district (as defined in section 191(d)(2)) shall be treated as a certified historic structure unless the Secretary of the Interior has certified that such structure is not a certified historic structure, and that such structure is not of historic significance to the district, and if such certification occurs after the beginning of the demolition of such structure, the taxpayer has certified to the Secretary that, at the time of such demolition, he in good faith was not aware of the certification requirement by the Secretary of the Interior." (6) SUBSTANTIALLY REHABIUTATED HISTORIC PROPERTY.— 26 use 167. (A) Paragraph (1) of section 167(o) (relating to substan- tially rehabilitated historic property) is amended by insert- ing "(other than property with respect to which an amortiza- tion deduction has been allowed to the taxpayer under 26 use 191. section 191)" after "substantially rehabilitated historic property". 26 use 167. (B) Paragraph (2) of section 167(o) is amended by striking 26 use 191. out "section 191(d)(3)" and inserting in lieu thereof "section 191(d)(4)". (7) AMORTIZATION ALLOWABLE TO PERSONS WITH CERTAIN LEASE 26 use 191. INTERESTS.—Section 191(f) (relating to treatment of life tenants and remaindermen) is amended to read as follows: "(f) SPECDU. RULES FOR CERTAIN INTERESTS.—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2903 "(1) LIFE TENANT AND REMAINDERMAN.—In the case of property held by one person for life with remainder to another person, the deduction under this section shall be computed as if the life tenant were the absolute owner of the property and shall be allowable to the life tenant. "(2) CERTAIN LESSEES.— "(A) IN GENERAL.—In the case of a lessee of a certified historic structure who has expended amounts in connection with the certified rehabilitation of such structure which are properly chargeable to capital account, the deduction under this section shall be allowable to such lessee with respect to such amounts. "(B) AMORTIZABLE BASIS.—For purposes of subsection (a), the amortizable basis of such lessee shall not exceed the sum of the amounts described in subparagraph (A). "(C) LIMITATION.—Subparagraph (A) shall apply only if on the date of the certified rehabilitation is completed, the remaining term of the lease (determined without regard to any renewal periods) extends— "(i) beyond the last day of the useful life (determined without regard to this section) of the improvements for which the amounts described in subparagraph (A) were expended, and "(ii) for not less than 30 years.". (8) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 191 shall take effect as if included in the respective provisions of the "ote. Internal Revenue Code of 1954 to which such amendments relate, as such provision were added to such Code, or amended, by section 2124 of the Tax Reform Act of 1976. 26 USC 191. (g) FOREIGN CONVENTIONS.— (1) DEDUCTIONS NOT DISALLOWED TO EMPLOYER WHERE EMPLOYEE INCLUDES AMOUNTS IN GROSS INCOME.—Subparagraph (D) of sec- tion 274(h)(6) (relating to application of subsection to employer as 26 USC 274. well as to traveler) is amended to read as follows: "(D) SUBSECTION TO APPLY TO EMPLOYER AS WELL AS TO TRAVELER.— "(i) Except as provided in clause (ii), this subsection shall apply to deductions otherwise allowable under section 162 or 212 to any person, whether or not such 26 USC 162, person is the individual attending the foreign conven- 212. tion. For the purposes of the preceding sentence such person shall be treated, with respect to each individual, as having selected the same 2 foreign conventions as were selected by such individual. "(ii) This subsection shall not deny a deduction to any person other than the individual attending the foreign convention with respect to any amount paid by such person to or on behalf of another person if includible in the gross income of such other person. The preceding sentence shall not apply if such amount is required to be included in any information return filed by such person under part III of subchapter A of chapter 61 and is not so 26 USC 6031 et included." seq. (2) INDIVIDUALS RESIDING IN FOREIGN COUNTRIES.—Section 274(h)(6) is amended by adding at the end thereof the following 26 USC 274. new subparagraph:
92 STAT. 2904 PUBLIC LAW 95-600—NOV. 6, 1978 "(E) INDIVIDUALS RESIDING IN FOREIGN COUNTRIES.—For purposes of this subsection, in the case of an individual citizen of the United States who establishes to the satisfac- tion of the Secretary that he was a bona fide resident of a foreign country at the time that he attended a convention in such foreign country, such individual's attendance at such convention shall not be considered as attendance at a foreign convention.". 26 u s e 274. (3) TECHNICAL AMENDMENT.—The first sentence of section 274(h)(3) is amended by striking out "more than, one-half and inserting in lieu thereof "at least one-half. 26 u s e 274 (4) EFFECTIVE DATE.—The amendments made by this subsection note. shall apply to conventions beginning after December 31, 1976. (h) RENTAL OF FORMER PRINCIPAL RESIDENCE.— 26 u s e 280A. (1) IN GENERAL.—Subsection (d) of section 280A (relating to use of residence for personal purposes) is amended by adding at the end thereof the following new paragraph: "(3) RENTAL OF PRINCIPAL RESIDENCE.— "(A) IN GENERAL.—For purposes of applying subsection (c)(5) to deductions allocable to a qualified rental period, a taxpayer shall not be considered to have used a dwelling unit for personal purposes for any day during the taxable year which occurs before or after a qualified rental period described in subparagraph (B)(i), or before a qualified rental period described in subparagraph (B)(ii), if with respect to such day such unit constitutes the principal residence 26 u s e 1034. (within the meaning of section 1034) of the taxpayer. "(B) QUALIFIED RENTAL PERIOD.—For purposes of subpara- graph (A), the term 'qualified rental period' means a con- secutive period of— "(i) 12 or more months which begins or ends in such taxable year, or "(ii) less than 12 months which begins in such taxable year and at the end of which such dwelling unit is sold or exchanged, and for which such unit is rented to a person other than a 26 u s e 267. member of the family (as defined in section 267(c)(4)) of the taxpayer, or is held for rental, at a fair rental." 26 u s e 280A (2) EFFECTIVE DATE.—The amendment made by paragraph (1) note. shall take effect as if included in section 280A of the Internal 26 u s e 280A. Revenue Code of 1954, as such provision was added to such Code 26 u s e 601. by section 601(a) of the Tax Reform Act of 1976. 26 u s e 337. (i) CLARIFICATION OF LAST SENTENCE OF SECTION 337(c)(2).— (1) IN GENERAL.—Subsection (c) of section 337 (relating to limitations on application of section 337) is amended by striking out the last sentence of paragraph (2) and by adding at the end of such subsection the following new paragraph: "(3) SPECIAL RULE FOR AFFILIATED GROUP.— "(A) IN GENERAL.—Paragraph (2) shall not apply to a sale or exchange by a corporation (hereinafter in this paragraph referred to as the 'selling corporation') if— "(i) within the 12-month period beginning on the date of the adoption of a plan of complete liquidation by the selling corporation, the selling corporation and each distributee corporation is completely liquidated, and
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2905 "(ii) none of the complete liquidations referred to in clause (i) is a liquidation with respect to which section 333 applies. 26 USC 333. "(B) DEFINITIONS.—For purposes of subparagraph (A)— "(i) The term 'distributee corporation' means a corpo- ration in the chain of includible corporations to which the selling corporation or a corporation above the selling corporation in such chain makes a distribution in com- plete liquidation within the 12-month period referred to in subparagraph (A)(i). "(ii) The term 'chain of includible corporation' in- cludes, in the case of any distribution, any corporation which (at the time of such distribution) is in a chain of includible corporations for purposes of section 1504(a) 26 USC 1504. (determined without regard to the exceptions contained in section 1504(b)). Such term includes, where appropri- ate, the common parent corporation." (2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 337 shall apply to sales or exchanges made pursuant to a plan of note. complete liquidation adopted after December 31,1975. (j) CERTAIN TRANSACTIONS INVOLVING 2 OR MORE INVESTMENT COMPANIES.— (1) AMENDMENTS OF SECTION 368(a)(2)(F).— 26 USC 368. (A) The first sentence of clause (iii) of section 368(a)(2)(F) is amended— (i) by striking out "more than 50 percent" and insert- ing in lieu thereof "50 percent or more"; and (ii) by striking out "more than 80 percent" and insert- ing in lieu thereof "80 percent or more." (B) The first sentence of clause (vi) of section 368(a)(2)(F) is amended by striking out "is not diversified within the meaning" and inserting in lieu thereof "does not meet the requirements". (C) The second sentence of such clause (vi) is amended to read as follows: "If such investment company acquires stock of another corporation in a reorganization described in section 368(a)(1)(B), clause (i) shall be applied to the share- holders of such investment company as though they had exchanged with such other corporation all of their stock in such company for stock having a fair market value equal to the fair market value of their stock of such investment company immediately after the exchange." (D) Subparagraph (F) of section 368(a)(2) is amended by adding at the end thereof the following new clauses: "(vii) For purposes of clauses (ii) and (iii), the term 'securities' includes obligations of State and local gov- ernments, commodity futures contracts, shares of regu- lated investment companies and real estate investment trusts, and other investments constituting a security within the meaning of the Investment Company Act of 1940(15U.S.C.80a-2(36)). "(viii) In applying paragraph (3) of section 267(b) in 26 USC 267. respect of any transaction to which this subparagraph applies, the reference to a personal holding company in such paragraph (3) shall be treated as including a reference to an investment company and the determina- tion of whether a corporation is an investment company 39-194 O—80—pt. 3 18 : QL3
92 STAT. 2906 PUBLIC LAW 95-600—NOV. 6, 1978 '• shall be made as of the time immediately before the transaction instead of with respect to the taxable year referred to in such paragraph (3)." 26 use 368 (2) EFFECTIVE DATES.— "°*^- (A) Except as provided in subparagraphs (B) and (C), the amendments made by paragraph (1) shall apply as if 26 use 368. included in section 368(a)(2)(F) of the Internal Revenue Code of 1954 as added by section 2131(a) of the Tax Reform Act of 1976. (B) Clause (viii) of section 368(a)(2)(F) of the Internal Revenue Code of 1954 (as added by paragraph (1)) shall apply only with respect to losses sustained after September 26, 1977. *• ; (C) Clause (vii) of section 368(a)(2)(F) of the Internal Reve- nue Code of 1954 (as added by paragraph (1)) shall apply only with respect to transfers made after September 26, 1977. (k) AT RISK PROVISIONS.— 26 use 465 (1) CLERICAL AMENDMENT TO EFFECTIVE DATE.—Subparagraph note. (A) of section 204(c)(3) of the Tax Reform Act of 1976 is amended by striking out "section 465(c)(1)(B)" and inserting in lieu thereof "section 465(c)(1)(C)". 26 use 465. (2) CLARIFICATION OF SECTION 465(d).—Subsection (d) of section V 465 (defining loss for purposes of the at risk provisions) is amended by striking out ' (determined without regard to this section)" and inserting in lieu thereof "(determined without regard to the first sentence of subsection (a))". 26 use 465 (3) EFFECTIVE DATE.—The amendments made by this subsection note. shall take effect on October 4,1976. (1) AMENDMENTS RELATING TO USE OF ACCRUAL ACCOUNTING FOR FARMING.— (1) AUTOMATIC IO-YEAR ADJUSTMENT PERIOD FOR FARMING COR- PORATIONS REQUIRED TO USE ACCRUAL ACCOUNTING.—Paragraph 26 use 447. (3) of section 447(f) (relating to coordination with section 481) is amended— (A) by striking out "(except as otherwise provided in such regulations)", and (B) by inserting "(or the remaining taxable years where there is a stated future life of less than 10 taxable years)" after "10 taxable years". 26 use 447 (2) AUTOMATIC IO-YEAR ADJUSTMENT FOR FARMING SYNDICATES note. CHANGING TO ACCRUAL ACCOUNTING.—If— (A) a farming syndicate (within the meaning of section 26 use 464. 464(c) of the Internal Revenue Code of 1954) was in existence on December 31,1975, and (B) such syndicate elects an accrual method of account- ing (including the capitalization of preproductive period 26 use 447. expenses described in section 447(b) of such Code) for a taxable year beginning before January 1,1979, then such election shall be treated as having been made with the consent of the Secretary of the Treasury or his delegate and, under regulations prescribed by the Secretary of the Treasury or his delegate, the net amount of the adjustments required by 26 use 481. section 481(a) of such Code to be taken into account by the taxpayer in computing taxable income shall be taken into account in each of the 10 taxable years (or the remaining taxable years where there is a stated future life of less than 10 taxable years) beginning with the year of change.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2907 (3) EXTENDING FAMILY ATTRIBUTION TO SPOUSE IN THE FARMING SYNDICATE RULES.— (A) Subparagraph (E) of section 464(c)(2) (defining farming 26 use 464. syndicate) is amended by striking out "(within the meaning of section 267(c)(4))" and inserting in lieu thereof "(or a 26 use 267. spouse of any such member)". (B) Paragraph (2) of section 464(c) is amended by adding at the end thereof the following new sentence: "For purposes of subparagraph (E), the term 'family' has the meaning given to such term by section 267(c)(4)." (4) EFFECTIVE DATE.—The amendment made by paragraphs (1) 26 use 447 and (3) shall take effect as if included in section 447 or 464 (as the "^*^;cr AA? case may be) of the Internal Revenue (Hode of 1954 at the time of i^^ ' the enactment of such sections. (m) EXTENSION OF CERTAIN PROVISIONS TO FOREIGN PERSONAL HOLDING COMPANIES.— (1) SECTION 189.—Subsection (a) of section 189 (relating to 26 use 189. amortization of real property construction period interest and taxes) is amended— (A) by striking out "an electing small business corporation (within the meaning of section 1371(b)), or personal holding 26 use 1371. company (within the meaning of section 542)," ; and 26 use 542. (B) by adding at the end thereof the following new sen- tence: "For purposes of this section, an electing small busi- ness corporation (as defined in section 1371(b)), a personal holding company (as defined in section 542), and a foreign personal holding company (as defined in section 552) shall be 26 use 552. treated as an individual." (2) SECTION 280.—Subsection (a) of section 280 (relating to 26 use 280. certain expenditures incurred in production of films, books, records, or similar property) is amended— (A) by striking out "Except in the case of a corporation (other than an electing small business corporation (as defined in section 1371(b)) or a personal holding company (as defined in section 542) and except" and inserting in lieu thereof "In the case of an individual, except"; and (B) by adding at the end thereof the following new sen- tence: "For purposes of this section, an electing small busi- ness corporation (as defined in section 1371(b)), a personal holding company (as defined in section 542), and a foreign personal holding company (as defined in section 552) shall be treated as an individual." (3) EFFECTIVE DATES.— (A) The amendments made by paragraph (1) shall take 26 use 189 effect as if included in the amendment made by section "ote. 201(a) of the Tax Reform Act of 1976. 26 use 189. (B) The amendments made by paragraph (2) shall take 26 use 280 note. effect as if included in the amendment made by section 210(a) of the Tax Reform Act of 1976. (n) DEFINITION OF CONDOMINIUM MANAGEMENT ASSOCIATION.— (1) I N GENERAL.—Paragraph (2) of section 528(c) (defining 26 use 528. condominium management association) is amended by striking out "as residences" and inserting in lieu thereof "by individuals for residences". (2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 use 528 shall apply to taxable years beginning after December 31, 1973. note. (o) DEFINITION OF PERSONAL HOLDING COMPANY.—
92 STAT. 2908 PUBLIC LAW 95-600—NOV. 6, 1978 26 use 542 (1) IN GENERAL.—The last sentence of section 542(a)(2) of the note. Internal Revenue Code of 1954 (relating to stock ownership 26 use 542. requirement) shall not apply in the case of an organization or trust organized or created before July 1,1950, if at all times on or after July 1, 1950, and before the close of the t£ixable year such organization or trust has owned all of the common stock and at least 80 percent of the total number of shares of all other classes of stock of the corporation. 26 use 542 (2) EFFECTIVE DATE.—The provisions of paragraph (1) shall note. apply with respect to taxable years beginning after December 31, 1976. (p) SPECIAL RULE FOR GAIN ON PROPERTY TRANSFERRED TO TRUST AT LESS THAN FAIR MARKET VALUE.— (1) ADDITIONAL TAX TO APPLY ONLY TO RECOGNIZED GAINS.— (A) IN GENERAL.—Subsections (a)(1), (a)(2), and (b)(1) of 26 use 644. section 644 (relating to special rule for gain on property transferred to trust at less than fair market value) are each amended by striking out "gain realized" each place it appears and inserting in lieu thereof "gain recognized". (B) SPECIAL RULE FOR SUBSTITUTED BASIS PROPERTY.—Sub- section (d) of section 644 (relating to special rule for short sales) is amended to read as follows: "(d) SPECIAL RULES.— "(1) SHORT SALES.—If the trust sells the property referred to in subsection (a) in a short sale within the 2-year period referred to in such subsection, such 2-year period shall be extended to the date of the closing of such short sale. "(2) SUBSTITUTED BASIS PROPERTY.—For purposes of this section, in the case of any property held by the trust which has a basis determined in whole or in part by reference to the basis of any other property which was transferred to the trust— "(A) the initial transfer of such property in trust by the transferor shall be treated as having occurred on the date of the initial transfer in trust of such other property, "(B) subsections (a)(1)(B) and (b)(2) shall be applied by taking into account the fair market value and the adjusted basis of such other property, and "(C) the amount determined under subsection (b)(2) with respect to such other property shall be allocated (under regulations prescribed by the Secretary) among such other property and all properties held by the trust which have a basis determined in whole or in part by reference to the basis of such other property.'' (2) TREATMENT OF NET OPERATING LOSSES, CAPITAL LOSSES, ETC., WHICH MAY AFFECT TRANSFEROR'S TAX IN OTHER YEARS.—Section 644(a)(2) (relating to additional tax on gain on property trans- . ferred to trust at less than fair market vsilue) is amended by adding at the end thereof the following new sentence: "The determination of teix under clause (i) of subparagraph (A) shall be made by not taking into account any carryback, and by not taking into account any loss or deduction to the extent that such loss or deduction may be carried by the transferor to any other tsixable year." (3) TECHNICAL AMENDMENT.—Paragraph (1) of section 644(f) is amended by striking out "subsection (a)" and inserting in lieu thereof "subsection (a) (other than the 2-year requirement of paragraph (1)(A) thereof)".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2909 (4) CONFORMING AMENDMENT TO REVISION OF SECTION 644.— 26 use 644 Section 1402(b)(1) of the Tax Reform Act of 1976 (relating to "ote. holding period for long-term capital gains treatment) is amended by striking out subparagraph (K) thereof. (5) EFFECTIVE DATES.— 26 USC 644 (A) Except as provided in subparagraph (B), the amend- "o*^- ment made by this subsection shall apply to transfers in trust made after May 21,1976. (B) The amendment made by paragraph (4) shall take effect on October 4,1976. (q) ALLOWANCE OF FOREIGN TAX CREDIT FOR ACCUMULATION DISTRI- BUTIONS.— (1) SPECIAL RULES FOR FOREIGN TRUST.— (A) Subsection (d) of section 665 is amended to read as 26 USC 665. follows: "(d) TAXES IMPOSED ON THE TRUST.—For purposes of this subpart— "(1) IN GENERAL.—The term 'taxes imposed on the trust' means the amount of the taxes which are imposed for any taxable year ^ of the trust under this chapter (without regard to this subpart or subpart A of part IV of subchapter A) and which, under regula- tions prescribed by the Secretary, are properly allocable to the undistributed portions of distributable net income and gains in excess of losses from sales or exchanges of capital assets. The amount determined in the preceding sentence shall be reduced by any amount of such taxes deemed distributed under section 666 (b) and (c) or 669 (d) and (e) to any beneficiary. 26 USC 666, "(2) FOREIGN TRUSTS.—In the case of any foreign trust, the term 669. 'taxes imposed on the trust' includes the amount, reduced as provided in the last sentence of paragraph (1), of any income, war profits, and excess profits taxes imposed by any foreign country or possession of the United States on such foreign trust which, as determined under paragraph (1), are so properly allocable." (B) Section 667 is amended by adding at the end thereof 26 USC 667. the following new subsection: "(d) SPECIAL RULES FOR FOREIGN TRUST.— "(1) FOREIGN TAX DEEMED PAID BY BENEFICIARY.— "(A) I N GENERAL.—In determining the increase in tax under subsection (b)(1)(D) for any computation year, the taxes described in section 665(d)(2) which are deemed distrib- uted under section 666 (b) or (c) and added under subsection (b)(1)(C) to the taxable income of the beneficiary for any computation year shall, except as provided in subparagraphs (B) and (C), be treated as a credit against the increase in tax for such computation year under subsection (b)(1)(D). "(B) DEDUCTION IN LIEU OF CREDIT.—If the beneficiary did not choose the benefits of subpart A of part III of subchapter N with respect to the computation year, the beneficiary may in lieu of treating the amounts described in subparagraph (A) (without regard to subparagraph (O) as a credit may treat such amounts as a deduction in computing the benefi- ciary's taxable income under subsection (b)(1)(C) for the computation year. "(C) LIMITATION ON CREDIT; RETENTION OF CHARACTER.— "(i) LIMITATION ON CREDIT.—For purposes of determin- ing under subparagraph (A) the amount treated as a credit for any computation year, the limitations under subpart A of part III of subchapter N shall be applied
92 STAT. 2910 PUBLIC LAW 95-600—NOV. 6, 1978 V'iy separately with respect to amounts added under subsec- tion (bXlXC) to the tsixable income of the beneficiary for such computation year. For purposes of computing the , , , increase in tax under subsection (b)(1)(D) for any compu- tation year for which the beneficiary did not choose the benefits of subpart A of part III of subchapter N, the beneficiary shall be treated as having chosen such benefits for such computation year. "(ii) RETENTION OF CHARACTER.—The items of income, deduction, and credit of the Trust shall retain their 26 use 904. '* character (subject to the application of section 904(f)(5)) to the extent necessary to apply this paragraph. "(D) COMPUTATION YEAR.—For purposes of this paragraph, " ^' >» ' the term 'computation year' means any of the three taxable years remaining after application of subsection (b)(1)(B).". 26 use 667. (C) The last sentence of section 667(b)(1) is amended by inserting "(other than the amount of taxes described in Ante, p. 2909. section 665(d)(2))" after "taxes". 26 use 904. (2) RECAPTURE OF OVERALL FOREIGN LOSS.—Section 904(f) is amended by adding at the end thereof the following new para- graph: "(5) ACCUMULATION DISTRIBUTIONS OF FOREIGN TRUST.—For purposes of this chapter, in the case of amounts of income from sources without the United States which are treated under 26 use 666. section 666 (without regard to subsections (b) and (c) thereof if the taxpayer chose to take a deduction with respect to the amounts 26 use 667. described in such subsections under section 667(d)(1)(B)) as having been distributed by a foreign trust in a preceding taxable year, that portion of such amounts equal to the amount of any overall foreign loss sustained by the beneficiary in a year prior to the taxable year of the beneficiary in which such distribution is . received from the trust shall be treated as income from sources ' within the United States (and not income from sources without the United States) to the extent that such loss was not used under this subsection in prior taxable years, or in the current taxable year, against other income of the beneficiary.". (3) EFFECTIVE DATES.— 26 use 665 (A) The amendments made by paragraph (1) shall apply to note. distributions made in taxable years beginning after Decem- ber 31,1975. 26 use 904 (B) The amendments made by paragraph (2) shall take note. effect as if included in section 904(6 of the Internal Revenue 26 use 904. Code of 1954, as such provision was added to such Code by 26 use 904. section 1032(a) of the Tax Reform Act of 1976. (r) RETENTION OF CHARACTER OF AMOUNTS DISTRIBUTED FROM ACCUMULATION TRUST TO NONRESIDENT ALIENS AND FOREIGN CORPO- RATIONS.— 26 use 667. (1) IN GENERAL.—Section 667 (relating to treatment of amounts deemed distributed by trust in preceding years) is amended by adding at the end thereof the following new subsection: "(e) RETENTION OF CHARACTER OF AMOUNTS DISTRIBUTED FROM ACCUMULATION TRUST TO NONRESIDENT ALIENS AND FOREIGN CORPO- RATIONS.—In the case of a distribution from a trust to a nonresident alien individual or to a foreign corporation, the first sentence of subsection (a) shall be applied as if the reference to the determination 26 use 662. of character under section 662(b) applied to all amounts instead of just to tax-exempt interest."
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2911 (2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 667 shall apply to distributions made in taxable years beginning "^te. after December 31,1975. (s) EXEMPT INTEREST DIVIDENDS OF REGULATED INVESTMENT COMPA- NIES.— (1) TREATMENT OF TAX-EXEMPT INTEREST FOR PURPOSES OF THE 90-PERCENT AND 30-PERCENT TESTS.—Subsection (b) of section 851 26 USC 851. (relating to limitations on the definition of regulated investment company) is amended by adding at the end thereof the following new sentence: "For purposes of paragraphs (2) and (3), amounts excludable from gross income under section 103(a)(1) shall be 26 USC 103. treated as included in gross income." (2) LOSSES ATTRIBUTABLE TO TAX-EXEMPT INTEREST WHERE STOCK IS HELD LESS THAN 31 DAYS.—Paragraph (4) of section 852(b) 26 USC 852. (relating to loss on sale or exchange of stock held less than 31 days) is amended to read as follows: "(4) Loss ON SALE OR EXCHANGE OF STOCK HELD LESS THAN 31 DAYS.— "(A) Loss ATTRIBUTABLE TO CAPITAL GAIN DIVIDEND.—If— "(i) under subparagraph (B) or (D) of paragraph (3) a shareholder of a regulated investment company is required, with respect to any share, to treat any amount as a long-term capital gain, and "(ii) such share is held by the taxpayer for less than 31 days, then any loss (to the extent not disallowed under subpara- graph (B)) on the sale or exchange of such share shall, to the extent of the amount described in clause (i), be treated as a long-term capital loss. "(B) L o s s ATTRIBUTABLE TO EXEMPT-INTEREST DIVIDEND.— If— "(i) a shareholder of a regulated investment company receives an exempt-interest dividend with respect to any share, and "(ii) such share is held by the taxpayer for less than 31 days, then any loss on the sale or exchange of such share shall, to the extent of the amount of such exempt-interest dividend, be disallowed. "(C) DETERMINATION OF HOLDING PERIODS.—For purposes of this paragraph, the rules of section 246(c)(3) shall apply in 26 USC 246. determining whether any share of stock .has been held for less than 31 days; except that '30 days' shall be substituted for the number of days specified in subparagraph (B) of section 246(C)(3)." (3) EFFECTIVE DATE.—The amendments made by this section 26 USC 851 shall apply to taxable years beginning after December 31, 1975. note. (t) AMENDMENTS RELATING TO REAL ESTATE INVESTMENT TRUSTS.— (1) ANNUAL ACCOUNTING PERIOD.—Section 859 (relating to 26 USC 859. adoption of annual accounting period), as redesignated by the Act, is further amended to read as follows: "SEC. 859. ADOPTION OF ANNUAL ACCOUNTING PERIOD. "For purposes of this subtitle— "(1) a real estate investment trust shall not change to any accounting period other than the calendar year, and
92 STAT. 2912 PUBLIC LAW 95-600—NOV. 6, 1978 "(2) a corporation, trust, or association may not elect to be a real estate investment trust for any taxable year beginning after October 4,1976, unless its accounting period is the calendar year. Paragraph (2) shall not apply to a corporation, trust, or association which was considered to be a real estate investment trust for any taxable year beginning on or before October 4,1976." 26 use 856. (2) AMENDMENT OF SECTION 856(C)(3)(D).—Subparagraph (D) of section 856(c)(3) is amended by inserting "(other than gain from prohibited transactions)" after "and gain", (3) EXCISE TAX ON REIT UNDISTRIBUTED INCOME.— 26 use 6501. (A) Paragraph (3) of section 6501(e) (relating to limitations on assessment and collection) is amended by striking out "or 43" and inserting in lieu thereof "43, or 44". 26 use 275. (B) Subsection (b) of section 1605 of the Tax Reform Act of 1976 (relating to technical amendments) is amended by striking out paragraph (1) thereof. 26 use 6212. (C) Subparagraph (D) of section 1605(b)(5) of the Tax Reform Act of 1976 is amended to read as follows: 26 use 4971. "(D) by striking out 'of chapter 43 tax for the same taxable years,' in subsection (c)(1) and inserting in lieu thereof 'of 26 use 4971, chapter 43 tax for the same taxable year, of chapter 44 tax 4'981. for the same teixable year,'." (4) CORRECTION OF CROSS REFERENCE.—Subparagraph (B) of 26 use 859. section 859(b)(2) is amended by striking out "section 6601(c)" and inserting in lieu thereof "section 6601(b)". 26 use 859 (5) EFFECTIVE DATE.—The amendments made by this subsection note. shall take effect on October 4,1976. (u) AMENDMENTS RELATING TO TREATMENT OF FOREIGN INCOME.— (1) FOREIGN TAX CREDITS NOT DISALLOWED ON CERTAIN DISTRIBU- TIONS MADE BY POSSESSIONS CORPORATIONS.— 26 use 901. (A) IN GENERAL.—Paragraph (1) of section 901(g) (relating to certain taxes paid with respect to distributions from possessions corporations) is amended to read as follows: "(1) I N GENERAL.—For purposes of this chapter, any tax of a foreign country or possession of the United States which is paid or accrued with respect to any distribution from a corporation— "(A) to the extent that such distribution is attributable to periods during which such corporation is a possessions corporation, and "(B) (i) if a dividends received deduction is allowable with respect to such distribution under part VIII of subchapter B, •:••::: '.jri-'- o r "(ii) to the extent that such distribution is received in connection with a liquidation or other transaction with respect to which gain or loss is not recognized, shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amount so paid or accrued." (B) DEFINITION OF POSSESSIONS CORPORATION.—Paragraph (2) of section 901(g) (defining possessions corporation) is amended— 26 use 931. (i) by striking out "or during which section 931" and inserting in lieu thereof ", during which section 931", and
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2913 (ii) by inserting before the period at the end thereof the following: ", or during which section 957(c) applied to such corporation". (C) EFFECTIVE DATES.—The amendment made by subpara- 26 use 901 graph (A) shall apply as if included in section 901(g) of the note. Internal Revenue Code of 1954 as added by section 1051(d)(2) 26 use 901. of the Tax Reform Act of 1976. The amendments made by subparagraph (B) shall apply to distributions made after the date of the enactment of this Act in taxable years ending after such date. (2) FOREIGN TAX CREDIT ADJUSTMENTS FOR CAPITAL GAINS.— 26 use 904 (A) IN GENERAL.—Paragraph (2) of section 904(b) (relating to treatment of capital gains for purposes of the foreign tax credit limitation) is amended by striking out "For purposes of subsection (a)—" and inserting in lieu thereof "For pur- poses of this section—". (B) SOURCE RULE.—Subparagraph (C) of section 904(b)(3) is amended by striking out "For purposes of this paragraph, there" and inserting in lieu thereof There". (C) SOURCE RULE FOR LIQUIDATIONS OF CERTAIN FOREIGN CORPORATIONS.—Paragraph (3) of section 904(b) (relating to source rules for gain from the sale of certain personal property) is amended by redesignating subparagraph (D) as subparagraph (E) and by inserting after subparagraph (C) the following new subparagraph: "(D) GAIN FROM LIQUIDATION OF CERTAIN FOREIGN CORPORA- TIONS.—Subparagraph (C) shall not apply with respect to a distribution in liquidation of a foreign corporation to which part II of subchapter C applies if such corporation derived less than 50 percent of its gross income from sources within / the United States for the 3-year period ending with the close of such corporation's taxable year immediately preceding the year during which the distribution occurred." (D) EFFECTIVE DATE.—The amendments made by this para- 26 use 904 graph shall apply to taxable years beginning after Decem- note. ber 31,1975. (3) TREATMENT OF CERTAIN CAPITAL LOSS CARRYOVERS AND CARRYBACKS FOR PURPOSES OF THE LIMITATION ON CREDIT FOR FOREIGN TAXES.— (A) IN GENERAL.—Clause (iii) of section 904(b)(2)(A) (relat- 26 u s e 904. ing to treatment of capital gains of corporations for purposes of the foreign tax credit limitation) is amended by striking out "any net capital loss" and inserting in lieu thereof "for purposes of determining taxable income from sources with- out the United States, any net capital loss (and any amount which is a short-term capital loss under section 1212(a))". 26 u s e 1212. (B) EFFECTIVE DATE.—The amendment made by subpara- 26 u s e 904 graph (A) shall apply to taxable years beginning ^ t e r note. December 31,1975. (4) TREATMENT OF CAPITAL LOSS CARRYOVERS FOR PURPOSES OF FOREIGN LOSS RECAPTURE.— (A) I N GENERAL.—Subparagraph (a) of section 904(f)(2) 26 u s e 904. (defining overall foreign loss) is amended by striking out "or any capital loss carrybacks and carryovers to such year under section 1212". 26 u s e 1212. (B) FOREIGN OIL RELATED LOSSES.—Subparagraph (A) of section 904(f)(4) (relating to determination of foreign oil 26 u s e 904.
92 STAT. 2914 PUBLIC LAW 95-600—NOV. 6, 1978 26 use 907. related loss where section 907 applies) is amended by strik- ing out "or any capital loss carrybacks and carryovers to 26 use 1212. such year under section 1212". 26 use 904 (C) EFFECTIVE DATE.—The amendments made by this para- "***^- graph shall apply— (i) to overall foreign losses sustained in taxable years beginning after December 31,1975, and (ii) to foreign oil related losses sustained in taxable years ending after December 31,1975, (5) EFFECTIVE DATE FOR RECAPTURE OF FOREIGN OIL RELATED LOSSES.— 26 use 904 (A) I N GENERAL.—Paragraph (1) of section 1032(c) of the °ote- Tax Reform Act of 1976 is amended to read as follows: "(1) IN GENERAL.—Except as provided in paragraphs (2), (3), and (5), the amendment made by subsection (a) shall apply to losses sustained in tsixable years beginning after December 31, 1975. The amendment made by subsection (bXD shall apply to taxable years beginning after December 31, 1975. The amend- ment made by subsection (b)(2) shall apply to losses sustained in taxable years ending after December 31,1975." 26 use 904 (B) FOREIGN OIL RELATED LOSSES.—Subsection (c) of section note. 1032 of the Tax Reform Act of 1976 is amended by adding at the end thereof the following new paragraph: "(5) FOREIGN OIL RELATED LOSSES.—The amendment made by subsection (a) shall apply to foreign oil related losses sustained in taxable years ending after December 31,1975." 26 use 904 (6) TRANSITIONAL RULES FOR CERTAIN MINING OPERATIONS.—The note. second sentence of paragraph (2) of section 1031(c) of the Tax Reform Act of 1976 is amended to read as follows: "In the case of a loss sustained in a taxable year beginning before January 1, 1979, by any corporation to which this paragraph applies, if 26 use 904. section 904(a)(1) of such Code (as in effect before the enactment of this Act) applies with respect to such taxable year, the provisions of section 904(f) of such Code shall be applied with respect to such loss under the principles of such section 904(a)(1)." (7) TRANSITIONAL RULES FOR RECAPTURE OF CERTAIN FOREIGN LOSSES.— 26 use 904 (A) COMPUTATION OF DEFICIT IN EARNINGS AND PROFITS FOR note. PURPOSES OP THE RECAPTURE OF CERTAIN FOREIGN LOSSES.— Paragraph (4) of section 1032(c) of the Tax Reform Act of 1976 (relating to limitation based on deficit in earnings and profits for purposes of the recapture of foreign losses) is amended by adding at the end thereof the following new sentence: "For purposes of the preceding sentence, there shall be taken into account only earnings and profits of the corporation which (A) were accumulated in teixable years of the corporation beginning after December 31, 1962, and during the period in which the stock of such corporation from which the loss arose was held by the taxpayer and (B) are attributable to such stock." (B) RECAPTURE OF POSSESSION LOSSES DURING TRANSITIONAL PERIOD W H E R E TAXPAYER IS ON A PER-COUNTRY BASIS.— 26 use 904 (i) Subsection (c) of section 1032 of the Tax Reform Act note. of 1976 (relating to effective dates for recapture of foreign losses) is amended by adding at the end thereof the following new paragraph:
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2915 "(6) RECAPTURE OF POSSESSION LOSSES DURING TRANSITIONAL PERIOD WHERE TAXPAYER IS ON A PER-COUNTRY BASIS.— "(A) APPUCATION OF PARAGRAPH.—This paragraph shall apply if— "(i) the teixpayer sustained a loss in a possession of the United States in a taxable year beginning after Decem- ber 31,1975, and before January 1,1979, « "(ii) such loss is attributable to a trade or business engaged in by the taxpayer in such possession on Janu- ary 1,1976, and "(iii) the taxpayer chooses to have the benefits of subpart A of part III of subchapter N apply for such taxable year and section 904(a)(1) of the Internal Reve- nue Code of 1954 (as in effect before the enactment of 26 USC 904. this Act) applies with respect to such taxable year. "(B) NO RECAPTURE DURING TRANSITION PERIOD.—In any case to which this paragraph applies, for purposes of deter- mining the liability for tax of the taxpayer for taxable years beginning before January 1, 1979, section 904(f) of the Internal Revenue Code of 1954 shall not apply with respect to the loss described in subparagraph (A)(i). "(C) RECAPTURE OF LOSS AFTER THE TRANSITION PERIOD.—In any case to which this paragraph applies— "(i) for purposes of determining the liability for tax of the taxpayer for taxable years beginning after Decem- ber 31,1978, section 904(f) of the Internal Revenue Code of 1954 shall be applied with respect to the loss described in subparagraph (A)(i) under the principles of section 904(a)(1) of such Code (as in effect before the enactment ofthis Act);but "(ii) in the case of any taxpayer and any possession, the aggregate amount to which such section 904(f) applies by reason of clause (i) shall not exceed the sum of the net incomes of all affiliated corporations from such possession for taxable years of such affiliated corpora- tions beginning after December 31, 1975, and before January 1,1979. "(D) TAXPAYERS NOT ENGAGED IN TRADE ON BUSINESS ON JANUARY 1, 1976.—In any case to which this paragraph applies but for the fact that the taxpayer was not engaged in a trade or business in such possession on January 1,1976, for purposes of determining the liability for tax of the taxpayer for taxable years beginning before January 1,1979; if section 904(a)(1) of such Code (as in effect before the enactment of this Act) applies with respect to such taxable year, the provisions of section 904(f) of such Code shall be applied with respect to the loss described in subparagraph (A)(i) under the principles of such section 904(a)(1). "(E) AFFILIATED CORPORATION DEFINED.—For purposes of subparagraph (C)(ii), the term 'affiliated corporation' means a corporation which, for the taxable year for which the net income is being determined, was not a member of the same affiliated group (within the meaning of section 1504 of the Internal Revenue Code of 1954) as the taxpayer but would 26 USC 1504. have been a member of such group but for the application of subsection (b) of such section 1504."
92 STAT. 2916 PUBLIC LAW 95-600—NOV. 6, 1978 26 use 904 (ii) Paragraph (3) of section 1031(c) of the Tax Reform note. Act of 1976 is amended by striking out the last sentence. (8) LIMITATIONS ON FOREIGN TAX CREDIT WHERE INDIVIDUAL HAS FOREIGN OIL AND GAS EXTRACTION INCOME.— (A) REDUCTION I N FOREIGN TAX CREDIT FOR CERTAIN INDI- VIDUALS HAVING FOREIGN OIL AND GAS EXTRACTION INCOME.— 26 use 907. Subsection (a) (as amended by this Act) of section 907 (relating to special rules in case of foreign oil and gas income) is further amended to read as follows: "(a) REDUCTION IN AMOUNT ALLOWED AS FOREIGN TAX UNDER 26 use 901. SECTION 901.—In applying section 901, the amount of any oil and gas extraction taxes paid or accrued (or deemed to have been paid) during the taxable year which would (but for this subsection) be taken into account for purposes of section 901 shall be reduced by the amount (if any) by which the amount of such taxes exceeds the product of— "(1) the amount of the foreign oil and gas extraction income for the taxable year, "(2) multiplied by— "(A) in the case of a corporation, the percentage which is 26 use 11. equal to the highest rate of tax specified under section 11(b), or "(B) in the case of an individual, a fraction the numerator of which is the tax against which the credit under section 26 use 901. 901(a) is taken and the denominator of which is the taxpay- er's entire taxable income." 26 use 904. (B) APPUCATION OF SECTION 904 SEPARATELY TO FOREIGN OIL RELATED INCOME OF INDIVIDUALS.—Subsection (b) of section 26 use 907, 907 (relating to application of section 904 limitation) is 904. amended to read as follows: "(b) APPUCATION OF SECTION 904 LIMITATION.—The provisions of section 904 shall be applied separately with respect to— "(1) foreign oil related income, and "(2) other taxable income." (C) TECHNICAL AMENDMENT.—Paragraph (4) of section 26 use 904. 904(f) (relating to recapture of overall foreign loss) is amended by striking out "In the case of a corporation to 26 use 907. which section 907(b)(1) applies" and inserting in lieu thereof "In making the separate computation under this subsection with respect to foreign oil related income which is required by section 907(b)". 26 use 907 (D) EFFECTIVE DATES.— note. (i) The amendments made by this paragraph shall apply, in the case of individuals, to taxable years ending after December 31,1974, and, in the case of corporations, to taxable years ending after December 31,1976. (ii) In the case of any taxable year ending after December 31, 1975, with respect to foreign oil related income (within the meaning of section 907(c) of the 26 use 907. Internal Revenue Code of 1954), the overall limitation 26 use 904. provided by section 904(a)(2) of such Code shall apply and the per-country limitation provided by section 904(a)(1) of such Code shall not apply. (9) EFFECTIVE DATE FOR DISALLOWANCE OF FOREIGN TAX CREDIT 26 use 907 FOR CERTAIN PRODUCTION-SHARING CONTRACTS.—The second sen- note. tence of paragraph (3) of section 1035(c) of the Tax Reform Act of 1976 (relating to tax credit for production-sharing contracts) is amended to read as follows: "A contract described in the preced-
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2917 ing sentence shall be taken into account under paragraph (1) only with respect to Eimounts (A) paid or accrued to the foreign government before January 1, 1978, and (B) attributable to income earned before such date." (10) FOREIGN TAXES ATTRIBUTABLE TO SECTION 9 1 1 EXCLUSION.— (A) IN GENERAL.—The last sentence of section 911(a) (relat- 26 USC 911. ing to earned income from sources without the United States) is amended to read as follows: "An individual shall not be allowed as a deduction from his gross income any deductions (other than those allowed by section 151, 26 USC 151. relating to personal exemptions), to the extent that such deductions are properly allocable to or chargeable against amounts excluded from gross income under this subsection. For purposes of this title, the amount of the income, war profits, £ind excess profits taxes paid or accrued by any individual to a foreign country or possession of the United States for any taxable year shall be reduced by an amount determined by multiplying the amount of such taxes by a fraction— "(A) the numerator of which is the tax determined under subsection (d) (1) (B), and "(B) the denominator of which is the sum of the amount referred to in subparagraph (A), plus the limitation imposed for the taxable year by section 904(a).". 26 USC 904. (B) EFFECTIVE DATE.—The amendment made by subpara- 26 USC 911 graph (A) shall apply to taxable years beginning after note. December 31,1976. (11) SALE OF ASSETS BY A POSSESSIONS CORPORATION.— (A) IN GENERAL.—Subsection (a) of section 936 (relating to 26 USC 936. Puerto Rico and possession tax credit) is amended by redesig- nating paragraph (2) as paragraph (3) and by amending so much of paragraph (1) as precedes subparagraph (A) thereof to read as follows: "(1) IN GENERAL.—Except as provided in paragraph (3), if a domestic corporation elects the application of this section and if the conditions of both subparagraph (A) and subparagraph (B) of paragraph (2) are satisfied, there shall be allowed as a credit against the tax imposed by this chapter an amount equal to the portion of the tax which is attributable to the sum of— "(A) the taxable income, from sources without the United States, from— "(i) the active conduct of a trade or business within a possession of the United States, or "(ii) the sale or exchange of substantially all of the assets used by the taxpayer in the active conduct of such trade or business, and "(B) the qualified possession source investment income. "(2) CONDITIONS WHICH MUST BE SATISFIED.—The conditions referred to in paragraph (1) are:". (B) INCOME FROM SALE OF CARRYOVER BASIS PROPERTY NOT TAKEN INTO ACCOUNT.— (i) Subsection (d) of section 936 (relating to definitions) is amended by adding at the end thereof the following new paragraph: "(3) CARRYOVER BASIS PROPERTY.— "(A) I N GENERAL.—Income from the sale or exchange of any asset the basis of which is determined in whole or in part by reference to its basis in the hands of another person shall
92 STAT. 2918 PUBLIC LAW 95-600—NOV. 6, 1978 not be treated as income described in subparagraph (A) or (B) of subsection (a)(1). "(B) EXCEPTION FOR POSSESSIONS CORPORATIONS, ETC.—For purposes of subparagraph (A), the holding of any asset by another person shall not be taken into account if throughout the period for which such asset was held by such person 26 use 931, section 931, this section, or section 957(c) applied to such 957. person.", (ii) The heading of such subsection (d) is amended to read as follows: "(d) DEFINITIONS AND SPECIAL RULES.—". 26 use 936 (C) EFFECTIVE DATE.—The amendments made by this para- note, graph shall apply as if included in section 936 of the Internal 26 use 936. Revenue Code of 1954 at the time of its addition by section 1051(b) of the Tax Reform Act of 1976. 26 use 995 (12) GAIN ON DISPOSITION OF STOCK IN A DISC.— note- (A) DELAY IN EFFECTIVE DATE.—Paragraph (4) of section 1101(g) of the Tax Reform Act of 1976 (relating to effective date for amendment relating to gain or disposition of DISC stock) is amended by striking out "December 31,1975" and inserting in lieu thereof "December 31,1976". (B) TECHNICAL AMENDMENT.—Paragraph (1) of section 26 use 995. 995(c) (relating to gain on disposition of stock in a DISC) is amended by adding at the end thereof the following new sentence: "Subparagraph (C) shall not apply if the person receiving the stock in the disposition has a holding period for the stock which includes the period for which the stock was held by the share- holder disposing of such stock." 26 use 995 (C) EFFECTIVE DATE.—The amendment made by subpara- note. graph (B) shall apply to dispositions made after December 31,1976, in taxable years ending after such date. (13) LIMITATION ON PARTNER'S TAX WHERE PARTNER RECEIVES 26 USE 1248. AMOUNT TREATED AS SALE OF SECTION 1248 STOCK.— 26 use 751. (A) I N GENERAL.—Section 751 (relating to unrealized receivables and inventory items) is amended by adding at the end thereof the following new subsection: "(e) LIMITATION ON TAX ATTRIBUTABLE TO DEEMED SALES OF SEC- 26 use 1248. TiON 1248 STOCK.—For purposes of applying this section and sections 26 use 731, 731, 736, and 741 to any amount resulting from the reference to 736, 741. section 1248(a) in the second sentence of subsection (c), in the case of 26 use 1248. g^ji individual, the tax attributable to such amount shall be limited in the manner provided by subsection (b) of section 1248 (relating to gain from certain sales or exchanges of stock in certain foreign corpora- tion)." 26 use 736. (B) CROSS REFERENCE.—Section 736 (relating to pajmients to a retiring partner or a deceased partner's successor in interest) is amended by adding at the end thereof the following new subsection: "(c) CROSS REFERENCE.— "For limitation on the tax attributable to certain gain connected with section 1248 stock, see section 751(e)." 26 use 751 (C) EFFECTIVE DATE.—The amendments made by this para- note- graph shall apply to transfers beginning after October 9, 1975, and to sales, exchanges, and distributions taking place after such date.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2919 (14) EXCISE TAX ON TRANSFERS OF PROPERTY TO FOREIGN PERSONS TO AVOID F E D E R A L INCOME TAX.— (A) TRANSFERS INVOLVING ESTATES.—Section 1491 (relating 26 use I49i. to tax on transfers to avoid income tax) is amended by striking out "trust" each place it appears therein and inserting in lieu thereof "estate or trust". (B) CLARIFICATION OF PARAGRAPH (3) OF SECTION 1492.— Paragraph (3) of section 1492 (relating to nontaxable trans- 26 use 1492. fers) is amended to read as follows: "(3) To a transfer described in section 367; or". 26 USe 367. (C) EFFECTIVE DATE.—The amendments made by this para- ^^ ^^^ ^^^^ graph shall apply to transfers after October 2,1975. ^^^^' (15) ELECTION TO TREAT NONRESIDENT ALIEN INDIVIDUAL AS RESIDENT OF THE UNITED STATES.— (A) PROVISIONS AFFECTED BY ELECTION.—Paragraph (1) of section 6013(g) (relating to election to treat nonresident alien 26 use 6013. individual as resident of the United States) is amended to read as follows: "(1) I N GENERAL.—A nonresident alien individual with respect to whom this subsection is in effect for the taxable year shall be treated as a resident of the United States— "(A) for purposes of chapters 1 and 5 for all of such taxable 26 USC i et seq., year, and l^'^},fr^'^t 26 u s e 3401 et "(B) for purposes of chapter 24 (relating to wage withhold- seq. ing) for payments of wages made during such taxable year." (B) CONFORMING AMENDMENT.—Paragraph (5) of section 6013(g) (relating to termination of election by Secretary) is 26 use 6013. amended by striking out "chapter 1" and inserting in lieu thereof "chapters 1 and 5". (C) YEAR OF RESIDENCY.—Paragraph (1) of section 6013(h) (relating to return for year nonresident alien becomes resi- dent) is amended— (i) by striking out "chapter 1" and inserting in lieu thereof "chapters 1 and 5", and 26 use i et seq. (ii) by inserting before the period at the end thereof ^"^^^ ^^ *^9- the following: ", and for purposes of chapter 24 (relating 26 use 3401 et to wage withholding) for payments of wages made ^^i- during such taxable year". (D) CERTAIN AMOUNTS WITHHELD UNDER CHAPTER 3 TREATED AS OVERPAYMENTS OF TAX.—Subsection (b) of section 6401 (relating to excessive credits) is amended by adding at 26 use 6401. the end thereof the following new sentence: "For purposes of the preceding sentence, any credit allowed under paragraph (1) of section 32 (relating to withholding of tax on nonresi- 26 use 32. dent aliens and on foreign corporations) to a nonresident alien individual for a taxable year with respect to which an election under section 6013 (g) or (h) is in effect shall be 26 use 6013. treated as an amount allowable as a credit under section 31." 26 use 31. (E) EFFECTIVE DATES.—The amendments made by this 26 use 6013 paragraph— "°*^- (i) to the extent that they relate to chapter 1 or 5 of the Internal Revenue Code of 1954, shall apply to taxable 26 use i et seq. years ending on or after December 31,1975, and 1491 et seq. (ii) to the extent that they relate to wage withholding under chapter 24 of such Code, shall apply to remunera- 26 use 340i et tion paid on or after the first day of the first month ^^?
92 STAT. 2920 PUBLIC LAW 95-600—NOV. 6, 1978 which begins more than 90 days after the date of the enactment of this Act. (16) NONRESIDENT ALIEN INDIVIDUAL ALLOWED TO BE TREATED AS RESIDENT OF THE UNITED STATES.— 26 use 6013. (A) IN GENERAL.—Paragraph (2) of section 6013(g) (relating to election to treat nonresident alien individual as resident of the United States) is amended by striking out "who, at the time an election was made under this subsection," and inserting in lieu thereof "who, at the close of the taxable year for which an election under this subsection was made,". 26 use 6013 (B) EFFECTIVE DATE.—The amendment made by subpara- note. graph (A) shall apply to taxable years beginning after December 31,1975. (v) AMENDMENT OF SECTION 1239(a).— 26 use 1239. (1) IN GENERAL.—Subsection (a) of section 1239 (relating to gain from sale of depreciable property between certain related tax- payers) is amended by striking out "subject to the allowance for depreciation provided in section 167" and inserting in lieu thereof "of a character which is subject to the allowance for 26 use 167. depreciation provided in section 167". 26 use 1239 (2) EFFECTIVE DATE.—The amendment made by paragraph (1) note. shall apply as if included in the amendment made to section 1239 26 use 1239. of the Internal Revenue Code of 1954 by section 2129(a) of the Tax Reform Act of 1976. (w) RECAPTURE OF DEPRECIATION ON PLAYER CONTRACTS.— 26 use 1245. (1) IN GENERAL.—Subparagraph (C) of section 1245(a)(4) (defining previously unrecaptured depreciation with respect to contracts transferred) is amended to read as follows: (C) PREVIOUSLY UNRECAPTURED DEPRECIATION WITH RESPECT TO CONTRACTS TRANSFERRED.—For purposes of Sub- paragraph (A)(ii), the term 'previously unrecaptured depreciation' means the amount of any deduction allowed or allowable to the taxpayer transferor for the depreciation of any contracts involved in such transfer." (2) RECAPTURE OF DEPRECIATION WITH RESPECT TO INITIAL CON- TRACTS.—Subparagraph (B) of section 1245(a)(4) (defining previ- ously unrecaptured depreciation with respect to initial contracts) is amended— (A) by inserting "attributable to periods after December 31,1975," after "depreciation" in clause (i), (B) by inserting "incurred after December 31, 1975," after "losses ' in clause (i), and (C) by inserting "described in clause (i)" after "amounts" in clause (ii). 26 use 1245 (3) EFFECTIVE DATE.—The amendments made by this subsection not^- shall apply to transfers of player contracts in connection with any sale or exchange of a franchise after December 31, 1975. (x) TREATMENT OF PENSIONS AND ANNUITIES FOR 50-PERCENT MAXI- MUM RATE ON PERSONAL SERVICE INCOME.— 26 use 1348. (1) IN GENERAL.—Subparagraph (A) of section 1348a))(l) (defin- ing personal service income) is amended by striking out "pension or annuity" and inserting in lieu thereof "pension or annuity which arises from an employer-employee relationship or from tax-deductible contributions to a retirement plan". (2) TECHNICAL AMENDMENT.—The last sentence of section 1348(b) is amended by striking out "earned income" and insert- ing in lieu thereof "personal service income".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2921 (3) EFFECTIVE DATE.—The amendments made by this section 26 use 1348 shall apply to taxable years beginning after December 31,1976. "o^^- (y) CHANGES IN THE SUBCHAPTER S PROVISIONS.— (1) GRANTOR TRUST MAY BE TREATED AS PERMITTED SHAREHOLDER AFTER DECEDENT'S DEATH; GRANTOR OR GRANTOR TRUST MUST BE INDIVIDUAL.—Paragraph (1) of subsection (e) of section 1371 (as redesignated by this Act) is amended to read as follows: "(1)(A) A trust all of which is treated as owned by the grantor 26 use 1371. (who is an individual who is a citizen or resident of the United States) under subpart E of part I of subchapter J of this chapter. "(B) A trust which was described in subparagraph (A) immedi- ately before the death of the grantor and which continues in existence after such death, but only for the 60-day period begin- ning on the day of the grantor's death. If a trust is described in the preceding sentence and if the entire corpus of the trust is includible in the gross estate of the grantor, the preceding sentence shall be applied by substituting *2-year period' for '60- day period'." (2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 1371 shall apply to taxable years beginning after December 31, 1976. note. (z) WITHHOLDING OF FEDERAL TAXES ON CERTAIN INDIVIDUALS E N - GAGED IN FISHING.— (1) I N GENERAL.—Section 1207(f)(4) of the Tax Reform Act of 26 USC 3121 1976 (relating to effective date of provisions relating to withhold- "ote. ing on certain individuals engaged in fishing) is amended by striking out "December 31, 1971" each place it appears and inserting in lieu thereof "December 31,1954". (2) EFFECTIVE DATE.—The amendments made by paragraph (1) 26 USC 3121 shall take effect on October 4,1976. "ote. (aa) WITHDRAWALS FROM INDIVIDUAL RETIREMENT ACCOUNTS, ETC.— (1) IN GENERAL.—The last sentence of section 4973(b) (relating 26 USC 4973. to excess contributions to individual retirement accounts, etc.) is amended by striking out "solely because of employer contribu- tions to a plan or contract described in section 219(b)(2)" and 26 USC 219. inserting in lieu thereof "solely because of ineligibility under section 219(b)(2) or section 220(b)(3)". 26 USC 219, (2) EFFECTIVE DATE.—The amendment made by paragraph (1) ^20. shall apply as if included in section 1501 of the Tax Reform Act of 26 USC 4973 1976 at the time of the enactment of such Act. "ote. (bb) AMENDMENTS RELATING TO DISCLOSURE OF TAX RETURNS.— (1) DISCLOSURE OF MAILING ADDRESS FOR PURPOSES OF COLLECT- ING CERTAIN STUDENT LOANS.— (A) Subsection (m) of section 6103 (relating to disclosure of 26 USC 6103. taxpayer identity information) is amended to read as follows: "(m) DISCLOSURE OF TAXPAYER IDENTITY INFORMATION.— "(1) TAX REFUNDS.—The Secretary may disclose taxpayer iden- tity information to the press and other media for purposes of notifying persons entitled to tax refunds when the Secretary, after reasonable effort and lapse of time, has been unable to locate such persons. "(2) FEDERAL CLAIMS.—Upon written request, the Secretary may disclose the mailing address of a taxpayer to officers and employees of an agency personally and directly engaged in, and solely for their use in, preparation for any administrative or judicial proceeding (or investigation which may result in such a proceeding) pertaining to the collection or compromise of a 39-194 O—80—pt. 3 19 ; QL3
92 STAT. 2922 PUBLIC LAW 95-600—NOV. 6, 1978 Federal claim against such taxpayer in accordance with the provisions of section 3 of the Federal Claims Collection Act of 31 use 952. 1966. "(3) NATIONAL INSTITUTE FOR OCCUPATIONAL SAFETY AND HEALTH.—Upon written request, the Secretary may disclose the mailing address of taxpayers to officers and employees of the National Institute for Occupational Safety and Health solely for the purpose of locating individuals who are, or may have been, exposed to occupational hazards in order to determine the status of their health or to inform them of the possible need for medical care and treatment. "(4) INDIVIDUALS WHO HAVE DEFAULTED ON STUDENT LOANS.— "(A) I N GENERAL.—Upon written request by the Commis- sioner of Education, the Secretary may disclose the mailing address of any taxpayer who has defaulted on a loan made from the student loan fund established under part E of title 2C use 1088 et IV of the Higher Education Act of 1965 for use only for *•«?• purposes of locating such taxpayer for purposes of collecting such loan. "(B) DISCLOSURE TO INSTITUTIONS.—Any mailing address disclosed under subparagraph (A) may be disclosed by the Commissioner of Education to any educational institution with which he has an agreement under part E of title IV of the Higher Education Act of 1965 only for use by officers, employees or agents of such institution whose duties relate to the collection of student loans for purposes of locating individuals who have defaulted on student loans made by such institution pursuant to such agreement for purposes of collecting such loans." 26 use 6103. (B) Paragraph (3) of section 6103(a) is amended by insert- ing ", subsection (m)(4)(B)," after "subsection (e)(l)(D)(iii)". 26 use 7213. (C) Paragraph (2) of section 7213(a) (relating to penalties for unauthorized disclosure of information) is amended— (i) by striking out "or any local" and inserting in lieu thereof ", any local"; (ii) by inserting ", or any educational institution" after' 'enforcement agency''; and 26 use 6103. *, \ (iii) by striking out "section 6103(d) or (1)(6)" and inserting in lieu thereof "subsection (d), (1)(6), or (m)(4)(B) of section 6103". (2) DISCLOSURE OF TAX RETURN INFORMATION REGARDING SPE- CIAL FUEL EXCISE TAXES.—Subsection (d) of section 6103 (relating to disclosure to State tax officials) is amended by inserting " 3 1 , ' after "24,". (3) RETURN INFORMATION OTHER THAN TAXPAYER RETURN INFOR- MATION.—Paragraph (2) of section 6103(i) (relating to return information other than taxpayer return information) is amended by adding at the end thereof the following new sentence: "For purposes of this paragraph, the name and address of the tax- payer shall not be treated as taxpayer return information." (4) DISCLOSURE OF RETURN INFORMATION CONCERNING POSSIBLE CRIMINAL ACTIVITIES.—Paragraph (3) of section 6103(i) (relating to disclosure of return information concerning possible criminal activities) is amended by adding at the end thereof the following new sentence: "For purposes of the preceding sentence, the name and address of the taxpayer shall not be treated as taxpayer return information if there is return information (other than
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2923 taxpayer r e t u r n information) which may constitute evidence of a violation of Federal criminal laws." (5) DISCLOSURE UNDER TAX CONVENTIONS.—Section 6103(k)(4) 26 USC 6103. (relating to disclosure of r e t u r n information u n d e r income t£ix conventions) is amended— (A) by striking out "income" in t h e caption thereof, (B) by inserting "or gift and estate t a x " after "income tax", and (C) by inserting ",, or other convention relating to t h e exchange of t a x information," after "convention" t h e first place it appears. (6) CRIMINAL PENALTY FOR ^UNAUTHORIZED DISCLOSURE OF INFOR- MATION.—Section 7213(a) (relating to unauthorized disclosure of 26 USC 7213. information) is amended— (A) by striking out "to disclose" in paragraphs (1), (2), a n d (5) a n d inserting in lieu thereof ^'willfully to disclose", (B) by striking out "to thereafter print or publish" in p a r a g r a p h (3) a n d inserting in lieu thereof "thereafter will- fully to print or publish", and (C) by striking out "to offer" in paragraph (4) and inserting in lieu thereof "willfully to offer". (7) N o CIVIL UABILITY FOR GOOD FAITH BUT ERRONEOUS INTER- PRETATION OF DISCLOSURE REQUIREMENTS.—Section 7217 (relating 26 USC 7217. to civil damages for unauthorized disclosure of r e t u r n and r e t u r n information) is amended— (A) by redesignating subsections (b) a n d (c) as subsections ' (c) and (d), respectively; (B) by inserting after subsection (a) t h e following new subsection: "(b) N o LlABIUTY FOR GoOD FAITH BUT ERRONEOUS INTERPRETA- TION.—No liability shall arise under this section with respect to a n y disclosure which results from a good faith, b u t erroneous, interpreta- tion of section 6103."; and 26 USC 6103. (C) by striking out " A n action" in subsection (d) (as so redesignated) a n d inserting in lieu thereof "PERIOD FOR BRINGING ACTION.—An action". (8) EFFECTIVE DATES.— 26 USC 6103 (A) Except as provided in subparagraph (B), t h e amend- "«*«• ments made by this subsection shall take effect J a n u a r y 1, 1977. (B) T h e a m e n d m e n t s made by p a r a g r a p h (7) shall apply with respect to disclosures made after t h e date of t h e enactment of this Act. (cc) AMENDMENTS RELATING TO INCOME T A X RETURN PREPARERS.— (1) NEGOTIATION OF CHECKS BY BANK.—Subsection (f) of section 6695 (relating to negotiation of check) is amended by adding a t 26 USC 6695. t h e end thereof t h e following new sentence: " T h e preceding sentence shall not apply with respect to t h e deposit by a bank (within t h e meaning of section 581) of t h e full amount of t h e 26 USC 581. check in t h e taxpayer's account in such bank for t h e benefit of t h e taxpayer." (2) DEFINITION.—Clause (iii) of section 7701(a)(36)(B) (relating 26 USC 7701. to exceptions from t h e definition of income t a x r e t u r n preparer) is amended to read as follows: "(iii) prepares as a fiduciary a r e t u r n or claim for refund for any person, or".
92 STAT. 2924 PUBLIC LAW 95-600—NOV. 6, 1978 26 use 6695 (3) EFFECTIVE DATE.—The amendments made by this subsection note. shall apply to documents prepared after December 31, 1976. (dd) CLARIFICATION OF DECLARATORY JUDGMENT PROVISIONS WITH RESPECT TO REVOCATIONS OF OR OTHER CHANGES IN THE QUAUFICA- TIONS OF CERTAIN ORGANIZATIONS.— 26 u s e 7476. (1) QuAUFICATION OF CERTAIN RETIREMENT PLANS.—SubsOCtion (a) of section 7476 (relating to declaratory judgments relating to qualification of certain retirement plans) is amended by adding "" at the end thereof the following new sentence: "For purposes of this section, a determination with respect to a continuing qualification includes any revocation of or other change in a qualification." 26 u s e 7428. (2) CLASSIFICATION OF ORGANIZATIONS UNDER SECTION 501(c)(3), ETC.—Subsection (a) of section 7428 (relating to declaratory judgments relating to status and classification of organizations 26 use 501. under section 501(c)(3), etc.) is amended by adding at the end thereof the following new sentence: "For purposes of this section, a determination with respect to a continuing qualification or continuing classification includes any revocation of or other change in a qualification or classification." 26 use 7476 (3) EFFECTIVE DATE.—The amendments made by paragraphs (1) note. and (2) shall take effect as if included in section 7476 or 7428 of 26 use 7476, the Internal Revenue Code of 1954 (as the case may be) at the 7428. respective times such sections were added to such Code. (ee) CONTRIBUTIONS OF CERTAIN GOVERNMENT PUBUCATIONS.— 26 use 1231. (1) IN GENERAL.—Paragraph (1) of section 1231(b) (relating to definition of property used in trade or business) is amended— (A) by striking out "or" at the end of subparagraph (B), (B) by striking out the period at the end of subparagraph (C) and inserting in lieu thereof a comma and "or", and (C) by adding at the end thereof the following new subparagraph: "(D) a publication of the United States Government (in- cluding the Congressional Record) which is received from the United States Government, or any agency thereof, other than by purchase at the price at which it is offered for sale to the public, and which is held by a taxpayer described in 26 use 1221. paragraph (6) of section 1221.". 26 use 1231 (2) EFFECTIVE DATE.—The amendment made by paragraph (1) note. shall apply with respect to sales, exchanges, and contributions made after October 4,1976. (ff) EXEMPTION FOR LIGHT-DUTY TRUCK PARTS.— 26 use 4063. (1) IN GENERAL.—Section 4063 (relating to exemption of motor vehicles and parts) is amended by adding at the end thereof the following new subsection: "(e) PARTS FOR LIGHT-DUTY TRUCKS.—The tax imposed by section 4061(b) shall not apply to the sale by the manufacturer, producer, or importer of any article which is to be resold by the purchaser on or in connection with the first retail sale of a light-duty truck, as described 26 use 4061. in section 4061(a)(2), or which is to be resold by the purchaser to a second purchaser for resale by such second purchaser on or in connection with the first retail sale of a light-duty truck." (2) CONFORMING AMENDMENTS.— 26 use 4221. (A) Section 4221(c) (relating to manufacturer relieved from 26 use 4063. liability in certain cases) is amended by inserting "4063(e)," after "4063(b),".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2925 B i (B) Section 4222(d) (relating to registration in t h e case of 26 USC 4222. tax-free sales) is amended by inserting "4063(e)," after 26 USC 4063. "4063(b),". (3) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 4063 shall t a k e effect on t h e first day of t h e first calendar month note. beginning more t h a n 20 days after t h e date of t h e enactment of this Act. SEC. 702. TECHNICAL, CLERICAL, AND CONFORMING AMENDMENTS TO ESTATE AND GIFT TAX PROVISIONS. (a) AMENDMENTS RELATING TO TREATMENT OF SECTION 306 STOCK.— (1) A P P U C A T I O N OF " F R E S H START" TO SECTION 306 STOCK.— Subsection (a) of section 306 (relating to disposition of certain 26 USC 306. stock) is amended by adding a t t h e end thereof t h e following new paragraph: "(3) ORDINARY INCOME FROM SALE OR REDEMPTION OF SECTION 306 STOCK W H I C H IS CARRYOVER BASIS PROPERTY ADJUSTED FOR 1976 VALUE.— "(A) I N GENERAL.—If any section 306 stock was distributed before J a n u a r y 1,1977, and if t h e adjusted basis of such stock in t h e hands of t h e person disposing of it is determined under section 1023 (relating to carryover basis), t h e n t h e amount 26 USC 1023. treated as ordinary income under paragraph (1)(A) of this subsection (or t h e amount treated as a dividend under section 301(c)(1)) shall n o t exceed t h e excess of t h e a m o u n t 26 USC 301. realized over t h e sum of— "(i) t h e adjusted basis of such stock on December 31, 1976, and "(ii) a n y increase in basis under section 1023(h). 26 USC 1023. "(B) REDEMPTION MUST BE DESCRIBED I N SECTION 302(b).— Subparagraph (A) shall apply to a redemption only if such redemption is described in paragraph (1), (2), or (4) of section 302(b).^' 26 USC 302. (2) CLARIFICATION THAT SECTION 303 OVERRIDES SECTION 306.— Subsection (b) of section 306 (relating to exceptions) is amended by adding a t t h e end thereof t h e following new paragraph: "(5) SECTION 303 REDEMPTIONS.—To t h e e x t e n t t h a t section 303 applies to a distribution in redemption of section 306 stock.". (3) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 306 shall apply to t h e estates of decedents dying after December 31, note. 1979. (b) COORDINATION OF DEDUCTION FOR ESTATE TAXES ATTRIBUTABLE TO INCOME I N RESPECT OF A DECEDENT W I T H THE CAPITAL G A I N DEDUCTION, E T C . — (1) I N GENERAL.—Subsection (c) of section 691 (relating to 26 USC 691. deduction for estate taxes in t h e case of income in respect of decedents) is amended by adding a t t h e end thereof t h e following new paragraph: "(4) COORDINATION WITH CAPITAL GAIN DEDUCTION, ETC.—For purposes of sections 1201, 1202, a n d 1211, a n d for purposes of 26 USC 1201, section 57(a)(9), t h e amount of a n y gain taken into account with 1202, 1211. respect to any item described in subsection (a)(1) shall be reduced 26 USC 57. (but not below zero) by t h e amount of t h e deduction allowable under paragraph (1) of this subsection with respect to such item." (2) EFFECTIVE DATE.—The a m e n d m e n t m a d e by p a r a g r a p h (1) 26 USC 691 shall apply with respect to decedents dying after t h e date of t h e note. enactment of this Act. (c) AMENDMENTS RELATING TO CARRYOVER BASIS.—
92 STAT. 2926 PUBLIC LAW 95-600—NOV. 6, 1978 (1) A M E N D M E N T S RELATING TO THE POSTPONEMENT OF THE EFFEC- TIVE DATE OF CARRYOVER BASIS PROVISIONS.— (A) FAIR MARKET VALUE WHERE FARM VALUATION 26 use 1014. ELECTED.—Subsection (a) of section 1014 (relating to basis of property acquired from a decedent) is amended to read as follows: "(a) IN GENERAL.—Except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent's death by such person, be— "(1) the fair market value of the property at the date of the decedent's death, or "(2) in the case of an election under either section 2032 or 26 use 5712, section 811(j) of the Internal Revenue Code of 1939 where the 2032. decedent died after October 21, 1942, its value at the applicable valuation date prescribed by those sections, or 26 use 2032. "(3) in the case of an election under section 2032.1, its value determined under such section." (B) GENERATION-SKIPPING TRANSFERS.—The second sen- 26 use 2614. tence of section 2614(a) (relating to basis adjustments in connection with generation-skipping transfers) is amended to read as follows: *Tf property is transferred in a generation- „j skipping transfer subject to tax under this chapter which occurs at the same time as, or after, the death of the deemed transferor, the basis of such property shall be adjusted— "(1) in the case of such a transfer occurring after June 11,1976, and before January 1, 1980, in a manner similar to the manner 26 use 1014. provided under section 1014(a), and "(2) in the case of such a transfer occurring after December 31, 26 use 1023. 1979, in a manner similar to the manner provided by section 1023 without regard to subsection (d) thereof (relating to basis of property passing from a decedent dying after December 31, 1979)." (2) MINIMUM CARRYOVER BASIS FOR TANGIBLE PERSONAL PROPERTY.— 26 use 1023. (A) IN GENERAL.—Subsection (h) of section 1023 (relating to adjustment to basis for December 31, 1976, fair market value) is amended by adding at the end thereof the following new paragraph: "(3) MINIMUM BASIS FOR TANGIBLE PERSONAL PROPERTY.— "(A) IN GENERAL.—If the holding period for any carryover basis property which is tangible personal property includes 5 December 31, 1976, then, for purposes of determining gain and applying this section, the adjusted basis of such property . immediately before the death of the decedent shall be treated as being not less than the amount determined under subparagraph (B). "(B) AMOUNT.—The amount determined under this sub- paragraph for any property is— "(i) the VEdue of such property (as determined with respect to the estate of the decedent without regard to 26 use 2032. section 2032), divided by "(ii) 1.0066 to the nth power where n equals the number of full calendar months which have elapsed between December 31, 1976, and the date of the dece- dent's death."
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2927 (B) CONFORMING AMENDMENT.—Paragraph (3) of section 1023(g) (relating to decedent's basis unknown) is amended by 26 USC 1023. striking out "to the person acquiring such property from the decedent" and inserting in lieu thereof "and cannot be reasonably ascertained". (3) TREATMENT OF INDEBTEDNESS.— (A) IN GENERAL.—Paragraph (1) of section 1023(g) (defining fair market value) is amended by inserting "(without regard to whether there is a mortgage on, or indebtedness in respect of, the property)" after "chapter 11". 26 USC 2001 et (B) TECHNICAL AMENDMENT.—Subsection (g) of section •^e?- 1023 (relating to other special rules and definitions) is amended by striking out paragraph (4). (4) ONLY ONE FRESH START WITH RESPECT TO CARRYOVER BASIS PROPERTY HELD ON DECEMBER 31, 1976.—Subsection (h) of section 1023 (relating to adjustment to basis for December 31, 1976, fair 26 USC 1023. market value) is amended by adding at the end thereof the following new paragraph: "(4) ONLY ONE FRESH START.—There shall be no increase in basis under this subsection by reason of the death of any decedent if the adjusted basis of the property in the hands of such decedent reflects the adjusted beisis of property which w£is carryover basis property with respect to a prior decedent." (5) AUTOMATIC LONG-TERM STATUS FOR GAINS AND LOSSES ON CARRYOVER BASIS PROPERTY.—Subparagraph (A) of section 1223(11) is amended by inserting "or 1023" after "section 1014". 26 USC 1223, (6) CLARIFICATION THAT ADJUSTED BASIS IS INCREASED FOR STATE 1023,1014. ESTATE TAXES.— (A) Subsection (c) of section 1023 (relating to increase in 26 USC 1023. basis for Federal and State estate taxes attributable to ^ appreciation) is amended to read as follows: "(c) INCREASE IN BASIS FOR FEDERAL AND STATE ESTATE TAXES ATTRIBUTABLE TO APPRECIATION.— "(1) FEDERAL ESTATE TAXES.—The basis of appreciated carry- over basis property (determined after any adjustment under subsection (h)) which is subject to the tax imposed by section 2001 26 USC 2001. or 2101 in the hands of the person acquiring it from the decedent 26 USC 2101. shall be increased by an amount which bears the same ratio to the Federal estate taxes as— "(A) the net appreciation in value of such property, bears to "(B) the fair market value of all property which is subject to the tax imposed by section 2001 or 2101. 26 USC 2001, "(2) STATE ESTATE TAXES.—The basis of appreciated carryover 2101. basis property (determined after any adjustment under subsec- tion (h)) which is subject to State estate taxes in the hands of the person acquiring it from the decedent shall be increased by an amount which bears the same ratio to the State estate taxes as— "(A) the net appreciation in value of such property, bears to "(B) the fair market value of all property which is subject to the State estate taxes." (B) The second sentence of paragraph (2) of section 1023(f) 26 USC 1023. (defining net appreciation) is amended by striking out "For purposes of subsection (d)," and inserting in lieu thereof "For purposes of paragraph (2) of subsection (c), such adjusted basis shall be increased by the amount of any adjustment
92 STAT. 2928 PUBLIC LAW 95-600—NOV. 6, 1978 under paragraph (1) of subsection (c), for purposes of subsec- tion (d),". 26 use 1023. (C) Paragraph (3) of section 1023(f) (defining Federal and State estate taxes) is amended to read as follows: "(3) FEDERAL AND STATE ESTATE TAXES.—For purposes of subsec- tion (c)— "(A) FEDERAL ESTATE TAXES.—The term 'Federal estate 26 use 2001, taxes' means the tax imposed by section 2001 or 2101, 2101- reduced by the credits against such tax. "(B) STATE ESTATE TAXES.—The term 'State estate taxes' means any estate, inheritance, legacy, or succession taxes, for which the estate is liable, actually paid by the estate to any State or the District of Columbia.'' (7) CLARIFICATION OP INCREASE IN BASIS FOR CERTAIN STATE 26 use 1023. SUCCESSION TAXES.—Paragraph (2) of section 1023(e) (relating to further increase in basis for certain State succession tax paid by transferee of property) is amended by striking out "for which the estate is not liable". (8) CLARIFICATION OF APPLICATION OF FRESH START.—Para- graphs (1) and (2)(A) of section 1023(h) (relating to adjustment to basis for December 31,1976, fair market value) are each amended by striking out "for purposes of determining gain" and inserting in lieu thereof "for purposes of determining gain and applying this section". (9) TECHNICAL AMENDMENT WITH RESPECT TO CERTAIN TERM 26 use 1001. INTERESTS.—Paragraph (1) of section 1001(e) (relating to certain 26 use 1014, term interests) is amended by striking out "section 1014 or 1015" 1015 and inserting in lieu thereof "section 1014, 1015, or 1023". 1015 1023 ^^^^ EFFECTIVE DATE.—The amendments made by this subsec- 26 use 1014 ^^^^ shall take effect as if included in the amendments and jjQ^g additions made by, and the appropriate provisions of the Tax 26 use 1 note. Reform Act of 1976. (d) AMENDMENTS RELATING TO VALUATION OF CERTAIN FARM, ETC., REAL PROPERTY.— (1) CLARIFICATION THAT SPECIAL VALUATION APPLIES ONLY TO INTERESTS PASSING TO QUALIFIED HEIRS.—Paragraph (1) of section 26 use 2032A. 2032A(b) (defining qualified real property) is amended by striking out "real property located in the United States" and inserting in lieu thereof "real property located in the United States which was acquired from or passed from the decedent to a qualified heir of the decedent and". (2) PROPERTY RECEIVED IN SATISFACTION OF PECUNIARY BEQUEST.—Subsection (e) of section 2032A (relating to definitions and special rules for farm valuation property) is amended by adding at the end thereof the following new paragraph: "(9) PROPERTY ACQUIRED FROM DECEDENT.—Property shall be considered to have been acquired from or to have passed from the decedent if— 26 use 1014. "(A) such property is so considered under section 10140t>) (relating to basis of property acquired from a decedent), "(B) such property is acquired by any person from the estate in satisfaction of the right of such person to a pecuniary bequest, or "(C) such property is acquired by any person from a trust in satisfaction of a right (which such person has by reason of the death of the decedent) to receive from the trust a specific
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2929 dollar amount which is the equivalent of a pecuniary bequest." (3) USE OF FARM VALUATION PROPERTY TO SATISFY PECUNIARY BEQUEST.—Subsection (a) of. section 1040 (relating to use of 26 USC 1040. certain appreciated carryover basis property to satisfy pecuniary bequest) is amended by inserting ^'(determined without regard to section 2032A)" after "chapter 11". 26 USC 2032A, (4) TREATMENT OF CERTAIN COMMUNITY PROPERTY.—Subsection ^^^^ ^^ *^9- (e) of section 2032A is amended by adding at the end thereof the 26 USC 2032A. following new paragraph: "(10) COMMUNITY PROPERTY.—If the decedent and his surviving spouse at any time held qualified real property as community property, the interest of the surviving spouse in such property shall be taken into account under this section to the extent necessary to provide a result under this section with respect to such property which is consistent with the result which would have obtained under this section if such property had not been community property." (5) SUBSTITUTION OF BOND FOR PERSONAL LIABIUTY OF QUAUFIED HEIR FOR THE RECAPTURE TAX WITH RESPECT TO FARM VALUATION PROPERTY.— (A) IN GENERAL.—Paragraph (6) of section 2032A(c) is ^ amended to read as follows: "(6) LIABILITY FOR TAX; FURNISHING OF BOND.—The qualified heir shall be personally liable for the additional tax imposed by this subsection with respect to his interest unless the heir has furnished bond which meets the requirements of subsection (e)(ll)." (B) BOND REQUIREMENTS.—Subsection (e) of section 2032A is amended by adding at the end thereof the following new paragraph: "(11) BOND IN LIEU OF PERSONAL LIABIUTY.—If the qualified heir makes written application to the Secretary for determina- tion of the maximum amount of the additional tax which may be imposed by subsection (c) with respect to the qualified heir's interest, the Secretary (as soon as possible, and in any event within 1 year after the making of such application) shall notify the heir of such maximum amount. The qualified heir, on furnishing a bond in such amount and for such period as may be required, shall be discharged from personal liability for any additional tax imposed by subsection (c) and shall be entitled to a receipt or writing showing such discharge." (6) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 2032A shall apply to the estates of decedents dying after December 31, note. 1976. (e) AMOUNT OF SECURITY REQUIRED FOR EXTENDED PAYMENT PROVI- SIONS FOR CLOSELY HELD BUSINESSES.— (1) IN GENERAL.— (A) Paragraph (2) of section 6324A(e) (defining aggregate interest amount) is amended to read as follows: "(2) REQUIRED INTEREST AMOUNT.—The term 'required interest 26 USC 6324J\^. amount' means the aggregate amount of interest which will be payable over the first 4 years of the deferral period with respect to the deferred amount (determined as of the date prescribed by 26 USC 6151. section 6151(a) for the payment of the tax imposed by chapter 26 USC 2001 et 11)." seq.
92 STAT. 2930 PUBLIC LAW 95-600—NOV. 6, 1978 26 use 6324A. (B) Subparagraph (B) of section 6324A(b)(2) (relating to maximum value of required property) is amended by strik- ing out "aggregate interest amount and inserting in lieu thereof "required interest amount". (C) Paragraph (5) of section 6324A(d) (relating to special rules) is amended by striking out "aggregate interest amount" and inserting in lieu thereof 'required interest amount". (D) Paragraph (4) of section 6324A(e) (relating to applica- tion of definitions in case of deficiencies) is amended by striking out "aggregate interest amount" and inserting in lieu thereof "required interei^t amount". 26 use 6324A (2) EFFECTIVE DATE.—The amendments made by this section note. shall apply to the estates of decedents dying after December 31, 1976. if) CLARIFICATION OF THE $3,000 ANNUAL EXCLUSION FROM THE RULE INCLUDING IN GROSS ESTATE TRANSFERS WITHIN 3 YEARS OF DEATH.— (1) AMENDMENT OF SECTION 2035(b).—Subsection (b) of section 26 use 2035. 2035 (relating to adjustments for gifts made within 3 years of decedent's death) is amended to read as follows: "(b) EXCEPTIONS.—Subsection (a) shall not apply— "(1) to any bona fide sale for an adequate and full consideration in money or money's worth, and "(2) to any gift to a donee made during a calendar year if the 26 use 6019. decedent was not required by section 6019 to file any gift tax return for such year with respect to gifts to such donee. Paragraph (2) shall not apply to any transfer with respect to a life insurance policy." 26 use 2035 (2) EFFECTIVE DATE.—The amendment made by paragraph (1) note. shall apply to the estates of decedents dying after December 31, 1976, except that it shall not apply to transfers made before January 1,1977. (g) AMENDMENTS RELATING TO ESTATE TAX MARITAL DEDUCTION.— (1) DEDUCTION NOT REDUCED FOR GIFT TO SPOUSE WHICH IS INCLUDED IN DONOR'S ESTATE BY REASON OF SECTION 2035.— 26 use 2056. Subparagraph (B) of section 2056(c)(1) (relating to adjustment to estate tax marital deduction for certain gifts to spouse) is amended by adding at the end thereof the following new sentence: "For purposes of this subparagraph, a gift which is includible 26 use 2035. in the gross estate of the donor by reason of section 2035 shall not be taken into account." (2) REDUCTION FOR GIFT TAX MARITAL DEDUCTION IN EXCESS OF 50 PERCENT OF THE VALUE OF GIFTS TO A SPOUSE.—ClaUSe (ii) of 26*USe 2056. section 2056(c)(1)(B) (relating to adjustment to estate tax marital deduction for certain gifts to spouse) is amended by inserting "required to be included in a gift tax return" after "with respect to any gift". 26 use 2056 (3) EFFECTIVE DATE.—The amendment made by this subsection note. shall apply to the estates of decedents dying after December 31, 1976. 26 use 2513, (h) COORDINATION OF SECTIONS 2513 AND 2035.— 2035. (1) IN GENERAL.—Section 2001 (relating to imposition and rate 26 use 2001. Qf estate tax) is amended by adding at the end thereof the following new subsection: > ;= i
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2931 "(e) COORDINATION OF SECTIONS 2513 AND 2035.—If— 26 USC 2513, "(1) the decedent's spouse was the donor of any gift one-half of 2035. which was considered under section 2513 £is made by the dece- 26 USC 2513. dent, and "(2) the amount of such gift is includible in the gross estate of the decedent's spouse by reason of section 2035, 26 USC 2035. such gift shall not be included in the adjusted taxable gifts of the decedent for purposes of subsection (b)(1)(B), and the aggregate amount determined under subsection (b)(2) shall be reduced by the amount (if any) determined under subsection (d) which was treated as a tax payable by the decedent's spouse with respect to such gift." (2) CONFORMING AMENDMENT.—Subparagraph (C) of section 2602(a)(1) (relating to amount of tax on generation-skipping 26 USC 2602. transfers) is amended by striking out "section 2001(b))" and inserting in lieu thereof "section 2001(b), as modified by section 26 USC 2001. 2001(e))". (3) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 2001 shall apply with respect to the estates of decedents dying after note. December 31,1976, except that such amendments shgdl not apply to transfers made before January 1,1977. (i) INCLUSION IN GROSS ESTATE OF STOCK TRANSFERRED BY THE DECEDENT WHERE THE DECEDENT RETAINS OR ACQUIRES VOTING RIGHTS.— (1) IN GENERAL.—Section 2036 (relating to transfers with 26 USC 2036. retained life estate) is amended by redesignating subsection (b) as subsection (c) and by inserting after subsection (a) the following new subsection: "Ob) VOTING RIGHTS.— "(1) IN GENERAL.—For purposes of subsection (a)(1), the reten- tion of the right to vote (directly or indirectly) shares of stock of a controlled corporation shall be considered to be a retention of the enjoyment of transferred property. ' '(2) CONTROLLED CORPORATION.—For purposes of paragraph (1), a corporation shall be treated as a controlled corporation if, at any time after the transfer of the property and during the 3-year period ending on the date of the decedent's death, the decedent owned (with the application of section 318), or had the right 26 USC 318. (either alone or in conjunction with any person) to vote, stock possessing at least 20 percent of the total combined voting power of all classes of stock. "(3) COORDINATION WITH SECTION 2035.—For purposes of apply- ing section 2035 with respect to paragraph (1), the relinquish- 26 USC 2035. ment or cessation of voting rights shall be treated as a transfer of property made by the decedent." (2) CONFORMING AMENDMENT.—Subsection (a) of section 2036 is 26 USC 2036. amended by striking out the last sentence thereof. (3) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 2036 shall apply to transfers made after June 22,1976. note. (j) AMENDMENTS RELATING TO INDIVIDUAL RETIREMENT ACCOUNTS, ETC., FOR SPOUSE.— (1) APPLICATION OF ESTATE TAX EXCLUSION TO INDIVIDUAL RETIREMENT ACCOUNTS, ETC., FOR SPOUSE.—Subsection (e) of Sec- tion 2039 (relating to exclusion of individual retirement ac- 26 USC 2039. counts, etc.) is amended by striking out "section 219" each place 26 USC 219. it appears and inserting in lieu thereof "section 219 or 220". 26 USC 219, (2) TRANSFERS TO INDIVIDUAL RETIREMENT ACCOUNTS, ETC., FOR 220. SPOUSE TREATED AS TRANSFERS OF PRESENT INTERESTS.—SeCtion
92 STAT. 2932 PUBLIC LAW 95-600—NOV. 6, 1978 26 use 2503. 2503 (relating to taxable gifts) is amended by adding at the end thereof the following new subsection: "(d) INDIVIDUAL RETIREMENT ACCOUNTS, ETC., FOR SPOUSE.—For purposes of subsection (b), any payment made by an individual for the benefit of his spouse— "(1) to an individual retirement account described in section 26 use 408. 408(a), "(2) for an individual retirement annuity described in section 408(b), or 26 use 409. "(3) for a retirement bond described in section 409, shall not be considered a gift of a future interest in property to the extent that such payment is allowable as a deduction under section 220". (3) EFFECTIVE DATES.— 26 use 2039 (A) The amendment made by paragraph (1) shall apply to note. the estates of decedents dying after December 31, 1976. 26 use 2503 (B) The amendment made by paragraph (2) shall apply to note. transfers made after December 31,1976. (k) PROVISIONS RELATING TO TREATMENT OF JOINT INTERESTS.— (1) REMOVAL OF REQUIREMENT OF ACTUARIAL COMPUTATIONS FOR JOINT INTERESTS IN PERSONAL PROPERTY.— 26 use 2511 et (A) IN GENERAL.—Subchapter (B) of chapter 12 (relating to seq. transfers for purposes of the gift tax) is amended by inserting 26 use 2515. after section 2515 the following new section: 26 use 2515A. "SEC. 2515A. TENANCIES BY THE ENTIRETY IN PERSONAL PROPERTY. "(a) CERTAIN ACTUARIAL COMPUTATIONS NOT REQUIRED.—In the case of— "(1) the creation (either by one spouse alone or by both spouses) of a joint interest of a husband and wife in personal property with right of survivorship, or "(2) additions to the value thereof in the form of improvements, reductions in the indebtedness thereof, or otherwise, the retained interest of each spouse shall be treated as one-half of the value of their joint interest. "0)) EXCEPTION.—Subsection (a) shall not apply with respect to any joint interest in property if the fair market value of the interest or of the property (determined as if each spouse had a right to sever) cannot reasonably be ascertained except by reference to the life expectancy of one or both spouses." (B) CHANGE IN SECTION 2515 HEADING.—The heading for 26 use 2515. section 2515 is amended to read as follows: 'SEC. 2515. TENANCIES BY THE ENTIRETY IN REAL PROPERTY." (C) CLERICAL AMENDMENTS.—The table of sections for sub- 26 use 2511 et chapter B of chapter 12 is amended by striking out the item seq. relating to section 2515 and inserting in lieu thereof the 26 use 2515. following: "Sec. 2515. Teneincies by the entirety in real property. "Sec. 2515A. Tenancies by the entirety in personal property." 26 use 2515A (D) EFFECTIVE DATE.—The amendments made by this para- note. graph shall apply to joint interests created after December 31,1976. (2) EXTENSION OF FRACTIONAL INTEREST RULE TO CERTAIN JOINT 26 use 2040. INTERESTS IN REAL OR PERSONAL PROPERTY CREATED BEFORE 1977.— Section 2040 (relating to joint interests) as amended by this Act, is further amended by adding at the end thereof the following new subsections:
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2933 "(d) JOINT INTERESTS OF HUSBAND AND WIFE CREATED BEFORE 1977.—Under regulations prescribed by the Secretary— r "(1) IN GENERAL.—In the case of any joint interest created before January 1, 1977, which (if created after December 31, 1976) would have constituted a qualified joint interest under subsection (b)(2) (determined without regard to clause (ii) of subsection (b)(2)(B)), the donor may make an election under this subsection to have paragraph (1) of subsection (b) apply with respect to such joint interest. "(2) TIME FOR MAKING ELECTION.—An election under this subsection with respect to any property shall be made for the calendar quarter in 1977,1978, or 1979 selected by the donor in a gift tax return filed within the time prescribed by law for filing a gift tax return for such quarter. Such an election may be made irrespective of whether or not the amount involved exceeds the exclusion provided by section 2503(b); but no election may be 26 USC 2503. made under this subsection after the death of the donor. "(3) TAX EFFECTS OF ELECTION.—In the case of any property with respect to which an election has been made under this - subsection, for purposes of this title— "(A) the donor shall be treated as having made a gift at the close of the calendar quarter selected under paragraph (2), and "(B) the amount of the gift shall be determined under paragraph (4). "(4) AMOUNT OF GIFT.—For purposes of paragraph (3)(B), the amount of any gift is one-half of the amount— "(A) which bears the same ratio to the excess of (i) the value of the property on the date of the deemed making of the gift under paragraph (3)(A), over (ii) the value of such property on the date of the creation of the joint interest, as "(B) the excess of (i) the consideration furnished by the donor at the time of the creation of the joint interest, over (ii) the consideration furnished at such time by the donor's spouse, bears to the total consideration furnished by both spouses at such time. "(5) SPECIAL RULE FOR PARAGRAPH (4)(A).—For purposes of paragraph (4)(A)— "(A) in the case of real property, if the creation was not treated as a gift at the time of the creation, or "(B) in the case of personal property, if .the gift was required to be included on a gift tax return but was not so included, and the period of limitations on assessment under section 6501 has expired with respect to the tax (if any) on 26 USC 6501. such gift, then the value of the property on the date of the creation of the joint interest shall be treated as zero. "(6) SUBSTANTIAL IMPROVEMENTS.—For purposes of this subsec- tion, a substantial improvement of any property shall be treated as the creation of a separate joint interest. "(e) TREATMENT OF CERTAIN POST-1976 TERMINATIONS.— "(1) IN GENERAL.—If— "(A) before January 1,1977, a husband and wife had a joint interest in property with right of survivorship, "(B) after December 31, 1976, such joint interest was terminated, and
92 STAT. 2934 PUBLIC LAW 95-600—NOV. 6, 1978 "(C) after December 31, 1976, a joint interest of such husband and wife in such property (or in property the basis of which in whole or in part reflects the basis of such property) was created. then paragraph (1) of subsection (b) shall apply to the joint interest described in subparagraph (C) only if an election is made under subsection (d). "(2) SPECIAL RULES.—For purposes of applying subsection (d) to property described in paragraph (1) of this subsection— "(A) if the creation described in paragraph (1)(C) occurs after December 31,1979, the election may be made only with respect to the calendar quarter in which such creation occurs, and "(B) the creation of the joint interest described in para- graphs (4) and (5) of subsection (d) is the creation of the joint interest described in paragraph (1)(A) of this subsection." (1) AMENDMENTS RELATING TO ORPHANS' EXCLUSION.— (1) ORPHANS' EXCLUSION WHERE THERE IS A TRUST FOR MINOR 26 use 2057. CHILDREN.—Section 2057 (relating to bequests, etc., to certain minor children) is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: "(d) QUALIFIED MINORS' TRUST.— "(1) IN GENERAL.—For purposes of subsection (a), the interest of a minor child in a qualified minors' trust shall be treated as an interest in property which passes or has passed from the dece- dent to such child. "(2) QUALIFIED MINORS' TRUST.—For purposes of paragraph (1), the term 'qualified minors' trust' means a trust— "(A) except as provided in subparagraph (D), all of the beneficiaries of which are minor children of the decedent, "(B) the corpus of which is property which psisses or has passed from the decedent to such trust, "(C) except £is provided in paragraph (3), all distributions from which to the beneficiaries of the trust before the termination of their interests will be pro rata, "(D) on the death of any beneficiary of which before the termination of the trust, the beneficiary's pro rata share of the corpus and accumulated income remains in the trust for the benefit of the minor children of the decedent who survive the beneficiary or vests in any person, and "(E) on the termination of which, each beneficiary will receive a pro rata share of the corpus and accumulated income. "(3) CERTAIN DISPROPORTIONATE DISTRIBUTIONS PERMITTED.—A trust shall not be treated as failing to meet the requirements of paragraph (2)(C) solely by reason of the fact that the governing instrument of the trust permits the making of disproportionate distributions which are limited by an ascertainable standard relating to the health, education, support, or maintenance of the beneficiaries. "(4) TRUSTEE MAY ACCUMULATE INCOME.—A trust which other- wise qualifies as a qualified minors' trust shall not be disqualified solely by reason of the fact that the trustee has power to accumulate income. "(5) COORDINATION WITH SUBSECTION (C).—In appljdng subsec- tion (c) to a qualified minors' trust, those provisions of section
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2935 2056(b) which a r e inconsistent with paragraph (3) or (4) of this 26 USC 2056. subsection shall not apply. "(6) DEATH OF BENEFICIARY BEFORE YOUNGEST CHILD REACHES AGE 23.—Nothing in this subsection shall be treated as disquali- fying an interest of a minor child in a trust solely because such interest will pass to another person if t h e child dies before t h e youngest child of the decedent attains age 23." (2) A G E 23 FOR TERMINABLE INTEREST RULE IN THE CASE OF ORPHANS' EXCLUSION.—The second sentence of subsection (c) of section 2057 (relating to limitation in t h e case of life estate or 26 USC 2057. other terminable interest) is amended by striking out " 2 1 " and inserting in lieu thereof "23". (3) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 2057 shall apply to the estates of decedents dying after December 31, note. 1976. (m) DISCLAIMER BY SURVIVING SPOUSE W H E R E INTEREST PASSES TO S U C H SPOUSE.— (1) I N GENERAL.—Paragraph (4) of section 2518(b) (defining 26 USC 2518. qualified disclaimer) is amended to read as follows: "(4) as a result of such refusal, t h e interest passes without a n y direction on t h e p a r t of the person making the disclaimer and passes either— "(A) to the spouse of the decedent, or "(B) to a person other t h a n t h e person making the disclaimer." (2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 2518 shall apply to transfers creating an interest in the person note, disclaiming made after December 31,1976. (n) AMENDMENTS RELATING TO T A X ON GENERATION-SKIPPING TRANSFERS.— (1) EFFECTIVE DATE OF GENERATION-SKIPPING TRANSFER PROVI- SIONS.—Section 2006(c) of t h e Tax Reform Act of 1976 (relating to 26 USC 2601 effective date of generation-skipping transfer provisions) is note. ^ amended by striking out "April 30, 1976" each place it appears and inserting in lieu thereof " J u n e 11,1976". (2) CERTAIN POWERS OF INDEPENDENT TRUSTEES NOT TREATED AS POWERS.—Subsection (e) of section 2613 (relating to definitions 26 USC 2613 for purposes of t h e tax on generation-skipping transfers) is amended to read as follows: "(e) CERTAIN POWERS N O T T A K E N INTO ACCOUNT.— "(1) LIMITED POWER TO APPOINT AMONG LINEAL DESCENDANTS OF THE GRANTOR.—For purposes of this chapter, a n individual shall be treated as not having a n y power in a t r u s t if such individual does not have any present or future power in t h e t r u s t other t h a n a power to dispose of t h e corpus of t h e t r u s t or t h e income therefrom to a beneficiary or a class of beneficiaries who are lineal descendants of t h e grantor assigned to a generation younger t h a n t h e generation assignment of such individual. "(2) POWERS OF INDEPENDENT TRUSTEES.— "(A) I N GENERAL.—For purposes of this chapter, a n indi- vidual shall be treated as not having a n y power in a t r u s t if such individual— "(i) is a trustee who h a s no interest in t h e trust, "(ii) is not a related or subordinate trustee, and "(ill) does not have a n y present or future power in t h e t r u s t other t h a n a power to dispose of t h e corpus of t h e
92 STAT. 2936 PUBLIC LAW 95-600—NOV. 6, 1978 trust or the income therefrom to a beneficiary or a class of beneficiaries designated in the trust instrument. "(B) RELATED OR SUBORDINATE TRUSTEE DEFINED.—For pur- poses of subparagraph (A), the term 'related or subordinate trustee' means any trustee who is assigned to a younger generation than the grantor's generation and who is— "(i) the spouse of the grantor or of any beneficiary, "(ii) the father, mother, lineal descendant, brother, or sister of the grantor or of any beneficiary, "(iii) an employee of a corporation in which the stockholdings of the grantor, the trust, and the benefi- ciaries of the trust are significant from the viewpoint of voting control, "(iv) an employee of a corporation in which the grantor or any beneficiary of the trust is an executive, "(v) a partner of a partnership in which the interest of the grantor, the trust, and the beneficiaries of the trust are significant from the viewpoint of operating control or distributive share of partnership income, "(vi) an employee of a corporation in which the grantor or any beneficiary of the trust is an executive, or "(vii) an employee of a partnership in which the grantor or any beneficiary of the trust is a partner.". (3) CLARIFICATION OF SECTION 2613(b)(2)(B).—Subparagraph (B) 26 use 2613. of section 2613(b)(2) (defining taxable termination for purposes of the tax on generation-skipping transfer) is amended— (A) by striking out "an interest and a power" and inserting in lieu thereof a present interest and a present power", and (B) by striking out "interest or power" and inserting in lieu thereof "present interest or present power". (4) ALTERNATE VALUATION IN CERTAIN CASES WHERE THERE IS A TAXABLE TERMINATION AT DEATH OF OLDER GENERATION BENEFICIARY 26 use 2602. (A) IN GENERAL.—Subparagraph (A) of section 2602(d)(1) (relating to alternate valuation) is amended by inserting "(or at the same time as the death of a beneficiary of the trust assigned to a higher generation than such deemed trans- feror)" after "such deemed transferor". (B) SPECIAL RULES.—Subparagraph (A) of section 2602(d)(2) (relating to special rules for alternate valuation) is amended by inserting "(or beneficiary)" after "the deemed trans- feror". 26 use 2613 (5) EFFECTIVE DATE.— note. (A) Except as provided in subparagraph (B), the amend- ments made by this subsection shall take effect as if included 26 use 2601 et in chapter 13 of the Internal Revenue Code of 1954 as added "eq- by section 2006 of the Tax Reform Act of 1976. (B) The amendment made by paragraph (1) shall take effect on October 4,1976. (o) ADJUSTMENT IN INCOME TAX ON ACCUMULATION DISTRIBUTIONS FOR PORTION OF ESTATE AND GENERATION-SKIPPING TRANSFER TAXES.— 26 use 667. (1) IN GENERAL.—Subsection (b) of section 667 (relating to tax on accumulation distribution) is amended by adding at the end thereof the following new paragraph: "(6) ADJUSTMENT IN PARTIAL TAX FOR ESTATE AND GENERATION- SKIPPING TRANSFER TAXES ATTRIBUTABLE TO PARTIAL TAX.—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2937 "(A) I N GENERAL.—The partial tax shall be reduced by a n amount which is equal to the pre-death portion of the partial tax multiplied by a fraction— "(i) t h e numerator of which is t h a t portion of the t a x imposed by chapter 11 or 13, as the case may be, which is 26 USC 2001 et attributable (on a proportionate basis) to amounts ^^9' 2601 et seq. included in the acciimulation distribution, and "(ii) t h e denominator of which is t h e amount of the accumulation distribution which is subject to t h e t a x imposed by chapter 11 or 13, as t h e case m a y be. "(B) PARTIAL TAX DETERMINED WITHOUT REGARD TO THIS PARAGRAPH.—For purposes of this paragraph, the term 'par- tial tax' means t h e partial t a x imposed by subsection (a)(2) determined under this subsection without regard to this paragraph. "(C) PRE-DEATH PORTION.—For purposes of this p a r a g r a p h , the pre-death portion of the partial t a x shall be a n amount which bears the same ratio to the partial tax as the portion of the accumulation distribution which is attributable to t h e period before t h e date of the death of the decedent or t h e date of the generation-skipping transfer bears to t h e total accumulation distribution." (2) EFFECTIVE DATE.—The a m e n d m e n t m a d e by p a r a g r a p h (1) 26 USC 667 shall apply— note. (A) in t h e case of t h e t a x imposed by chapter 11 of t h e 26 USC 2001 ef. Internal Revenue Code of 1954, to t h e estates of decedents seq. dying after December 31,1979, and (B) in t h e case of the t a x imposed by chapter 13, to a n y 26 USC 2601 et generation-skipping transfer (within the meaning of section seq. 2611(a) of such Code) made after J u n e 11,1976. (p) RELIEF OF EXECUTOR F R O M PERSONAL LIABILITY IN THE CASE OF RELIANCE ON G I F T T A X RETURNS.— (1) I N GENERAL.—Section 2204 (relating to discharge of fidu- 26 USC 2204. ciary from personal liability) is amended by adding a t t h e end thereof the following new subsection: "(d) GOOD FAITH RELIANCE ON G I F T TAX RETURNS.—If t h e executor in good faith relies on gift t a x returns furnished under section 6103(e)(3) for determining t h e decedent's adjusted taxable gifts, t h e 26 USC 6103. executor shall be discharged from personal liability with respect to any deficiency of the tax imposed by this chapter which is attributa- ble to adjusted taxable gifts which— "(1) a r e made more t h a n 3 years before t h e date of t h e decedent's death, and "(2) are not shown on such returns.". (2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 2204 shall apply with respect to t h e estates of decedents dying after "ot^. December 31,1976. (q) INDEXING OF FEDERAL T A X L I E N S . — (1) I N GENERAL.—Paragraph (4) of section 6323(f) (relating to 26 USC 6323. indexing of tax liens) is amended to read as follows: "(4) INDEXING REQUIRED WITH RESPECT TO CERTAIN REAL PROPERTY.—In t h e case of real property, if— "(A) under t h e laws of t h e State in which t h e real property is located, a deed is not valid as against a purchaser of t h e property who (at t h e time of purchase) does not have actual notice or knowledge of t h e existence of such deed unless t h e fact of filing of such deed has been entered and recorded in a -pt. 3 20 : QL3
92 STAT. 2938 PUBLIC LAW 95-600—NOV. 6, 1978 public index at the place of filing in such a manner that a reasonable inspection of the index will reveal the existence ofthe deed, and "(B) there is maintained (at the applicable office under paragraph (1)) an adequate system for the public indexing of Federal tax liens, then the notice of lien referred to in subsection (a) shall not be treated as meeting the filing requirements under paragraph (1) unless the fact of filing is entered and recorded in the index referred to in subparagraph (B) in such a manner that a reason- able inspection ofthe index will reveal the existence ofthe lien." 26 use 6323. (2) REFILING OF NOTICE OF UEN.—Section 6323(gX2)(A) (relating to refiling of notice of lien) is amended to read as follows: "(A)if— "(i) such notice of lien is refiled in the office in which the prior notice Of lien was filed, and "(ii) in the case of real property, the fact of refiling is entered and recorded in an index to the extent required by subsection (f)(4); and", 26 u s e 6323 (3) EFFECTIVE DATE.— "ote. (A) The amendments made by this subsection shall apply with respect to liens, other security interests, and other interests in real property acquired after the date of the enactment of this Act. (B) If, after the date of the enactment of this Act, there is a change in the application (or nonapplication) of section 26 use 6323. 6323(f)(4) of the Internal Revenue Code of 1954 (as amended by paragraph (1)) with respect to any filing jurisdiction, such change shall apply only with respect to liens, other security interests, and other interests in real property acquired after the date of such change, (r) CLERICAL AMENDMENTS.— (1) CLERICAL AMENDMENTS WITH RESPECT TO SECTION 6694.— 26 use 6694. (A) I N GENERAL.—Section 6694 (relating to failure to file information with respect to carryover basis property) which was added by section 2005(d)(2) ofthe Tax Reform Act of 1976 26 use 6698. is redesignated as section 6698. (B) DEFICIENCY PROCEDURES NOT TO APPLY.—Section 6698 (as redesignated by subparagraph (A)) is amended by adding at the end thereof the following new subsection: "(c) DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B of 26 use 6211 ef chapter 63 (relating to deficiency procedures for income, estate, gift, *«?• and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a)." (C) TABLE OF SECTIONS.—The table of sections for sub- 26 use 6671 et chapter B of chapter 68 is amended by striking out *^^" "Sec. 6694. Failure to file information with respect to carryover basis property." and inserting in lieu thereof the following: "Sec. 6698. Failure to file information with respect to carryover basis property." 26 use 2051. (2) CLERICAL AMENDMENT TO SECTION 2051.—Section 2051 (de- fining taxable estate) is amended by striking out "exemption and". (3) CLERICAL AMENDMENT TO SECTION 1016(a).—Subsection (a) of 26 use 1016. section 1016 (relating to adjustments to basis) is amended by redesignating paragraph (23) as paragraph (21).
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2939 (4) CLERICAL AMENDMENT TO SECTION 6324B(b).—Subsection (b) 26 USC 6324. of section 6324B (relating to period of lien for additional estate tax attributable to farm, etc., valuation) is amended by striking out "qualified farm real property" a n d inserting in lieu thereof "qualified real property". (5) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 6698 shall apply to estates of decedents dying after December 31,1976. note. SEC. 703. CORRECTIONS OF PUNCTUATION, SPELLING, INCORRECT CROSS REFERENCES, ETC. (a) ERRONEOUS CROSS REFERENCE IN INVESTMENT CREDIT.— (1) AMENDMENT OF SECTION 46(f)(8).—The first sentence of 26 USC 46. paragraph (8) of section 46(f) is amended by striking out "subsec- tion (a)(6)(D)" and inserting in lieu thereof "subsection (a)(7)(D)". (2) AMENDMENT OF SECTION 46(g)(5).—Paragraph (5) of section 46(g) (relating to definitions) is amended by striking out "Mer- 46 USC 1245 chant Marine Act, 1970" and inserting in lieu thereof "Merchant "ote. Marine Act, 1936". 46 USC 1101 et (3) AMENDMENT OF SECTION 48(d)(1)(B).—Subparagraph (B) of seq. section 48(d)(1) is amended by striking out "section 46(a)(5)" and inserting in lieu thereof "section 46(a)(6)". (4) AMENDMENT OF SECTION 48(d)(4)(D).—Subparagraph (D) of 26 USC 48. section 48(d)(4) is amended by striking out "section 57(c)(2)" a n d 26 USC 57. inserting in lieu thereof "section 57(c)(1)(B)". f\\) PRPPATD TJPCAT SFRVTCKS (1) P a r a g r a p h (2) of section 2134(e) of t h e Tax Reform Act of 26 USG 120 1976 is amended by striking out "section 120(d)(6)" and inserting note. in lieu thereof "section 120(d)(7)". 26 USC 120. (2) P a r a g r a p h (20) of section 501(c) is amended by striking out 26 USC 501. "section 501(c)(20)" and inserting in lieu thereof "this paragraph". (c) AMENDMENTS RELATING TO SECTIONS 219 AND 220.— (1) AMENDMENT OF SECTION 219(C)(4).—Paragraph (4) of section 219(c) (relating to participation in governmental plans by certain 26 USC 219. individuals) is amended by striking out "subsection (b)(3)(A)(iv)" each place it appears and inserting in lieu thereof "subsection (b)(2)(A)(iv)". (2) A M E N D M E N T OF SECTION 220(b)(1)(A).—Subparagraph (A) of section 220(b)(1) (relating to retirement savings for certain mar- 26 USC 220. ried individuals) is amended by striking out "amount paid to t h e account or annuity, or for t h e bond" and inserting in lieu thereof "amount paid to t h e account, for t h e annuity, or for t h e bond". (3) AMENDMENT OF SECTION 220(b)(4).—Paragraph (4) of section 22()(b) is amended by inserting "described in subsection (a)" after "any payment". (4) AMENDMENT OF SECTION 408(d)(4).—Subparagraph (A) of 26 USC 408. section 1501(b)(5) of t h e Tax Reform Act of 1976 is amended to read as follows: "(A) by inserting 'or 220' after '219' each place it appears, and". (5) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 46 note. shall apply to taxable years beginning after December 31, 1976. (d) ACCRUAL ACCOUNTING FOR F A R M CORPORATIONS.—Subsections (a) a n d (g)(2) of section 447 a r e each amended by striking out 26 USC 447. "preproductive expenses" a n d inserting in lieu thereof "preproduc- tive period expenses". (e) A M E N D M E N T O F SECTION 911.—Subsection (c) of section 911 is 26 USC 911. amended by redesignating paragraph (8) as paragraph (7).
92 STAT. 2940 PUBLIC LAW 95-600—NOV. 6, 1978 (f) TRANSITION RULE FOR PRIVATE FOUNDATIONS.—Subparagraph 26 use 4940 (F) of section 101(1)(2) of the Tax Reform Act of 1969 (relating to note. private foundations savings provisions) is amended by striking out the period at the end of clause (i) and inserting in lieu thereof a comma. (g) LOBBYING BY PUBLIC CHARITIES.— (1) LOBBYING NONTAXABLE AMOUNT.—Paragraph (2) of section 26 use 4911. 4911(c) (defining lobbying nontaxable amount) is amended by striking out "proposed expenditures" in the heading of the table contained in such paragraph and inserting in lieu thereof ' 'exempt purpose expenditures''. (2) TECHNICAL AMENDMENTS RELATING TO SECTION 501.— 26 use 501. (A) Section 2(a) of Public Law 94-568 is amended by striking out "subsection (h) as subsection (i) and by inserting after subsection (g)" and inserting in lieu thereof "subsection (i) as subsection (j) and by inserting after subsection (h)". 26 use 501. (B) Subsection (g) of section 501 of the Internal Revenue Code of 1954 (as inserted by section 2(a) of Public Law 94-568) is redesignated as subsection (i). 26 use 501 (C) The amendments made by this paragraph shall take note. effect on October 20, 1976, as if included in Public Law 94-568. (h) AMENDMENTS TO FOREIGN TAX PROVISIONS.— 26 use 907 (1) Paragraph (2) of section 1035(c) of the Tax Reform Act of note. 1976 (relating to tax credit for production-sharing contracts) is amended— 26 use 907. (A) by inserting "(as defined in section 907(c) of such Code)" after "gas extraction income" in subparagraph (A), and (B) by striking out "(as defined in section 907(c)(1) of such Code)" in subparagraph (B) and inserting in lieu thereof "(as so defined)". 26 use 999. (2) Paragraph (1) of section 999(c) (relating to international 26 use 995. boycott factor) is amended by striking out "995(b)(3)" and insert- ing in lieu thereof "995(b)(l)(F)(ii)". (3) Paragraph (2) of section 999(c) is amended by striking out "995(b)(l)(D)(ii)" and inserting in lieu thereof "995(b)(l)(F)(ii)". (i) AMENDMENTS TO DISC PROVISIONS.— 26 use 995. (1) The last two sentences of section 995(b)(1) (relating to deemed distributions to shareholders of a DISC) are amended— (A) by striking out "gross income (taxable income in the case of subparagraph (D))" and inserting in lieu thereof "income"; and (B) by striking out "subparagraph (E)" and inserting in lieu thereof "subparagraph (G)". (2) Subparagraph (G) of section 995(b)(1) is amended by striking out "subsection (D)" and inserting in lieu thereof "subsection (d)". 26 use 996. (3) Paragraph (2) of section 996(a) (relating to qualifying 26 use 995. distributions) is amended by striking out "section 995(b)(1)(E)" 26 use 995 and inserting in lieu thereof "section 995(b)(1)(G)". o^*TTcr ono (4) Paragraph (5) of section 1101(g) of the Tax Reform Act of o5 TTci^ no?' 1976 is amended by striking out "section 993(e)(3)" and inserting 26 use 995. ^ jjg^ thereof "section 995(e)(3)".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2941 (j) AMENDMENTS RELATING TO DEADWOOD PROVISIONS.— (1) TAX EXEMPT GOVERNMENTAL OBUGATIONS.— (A) The heading of paragraph (1) of section 103(b) is 26 USC 103. amended to read as follows: "(1) SUBSECTION (a) (i) OR (2) NOT TO APPLY.—". (B) Paragraph (1) of section 103(c) is amended by striking out "(a) (1) or (4)" each place it appears (including in the 5: ^ paragraph heading) and inserting in lieu thereof "(a) (1) or (2)". (C) Subparagraph (A) of section 103(c)(2) is amended by striking out "subsection (a) (1) or (2) or (4)" and inserting in lieu thereof "subsection (a) (1) or (2)". (D) Paragraph (5) of section 103(c) is amended by striking out "subsection (d)(2)(A)" and inserting in lieu thereof "para- graph (2)(A)". (E) Subsection (d) of section 103 is amended by striking out "subsection (c)(4)(G)" and inserting in lieu thereof "subsec- tion (b)(4)(G)". (2) AMENDMENTS RELATING TO SECTION 311(d)(2).— (A) Subsection (b) of section 2 of the Bank Holding: Com- 26 USC 311. pany Tax Act of 1976 is amended— (i) by striking out "subparagraph (F)" and inserting in lieu thereof "subparagraph (E)", and (ii) by striking out "subparagraph (G)" and inserting in lieu thereof "subparagraph (F)". (B) Subparagraph (H) of section 311(d)(2) is redesignated as subparagraph (G). (C) The amendments made by this paragraph shall take 26 USC 311 effect as if included in section 206) of the Bank Holding "ote. Company Tax Act of 1976. (3) AMENDMENT TO SECTION 453(c).—Paragraph (3) of section 453(c) is amended— 26 USC 453. (A) by striking out "(or by the corresponding provisions of prior revenue laws)" in the first sentence, and (B) by striking out the last sentence. (4) AMENDMENT OF SECTION 801(g).—Paragraphs (l)(B)(ii) and (7) of section 801(g) are each amended by striking out "subpara- 26 USC 801. graph (A), (B), (C), (D), or (E) of section 805(d)(1)" and inserting in 26 USC 805. lieu thereof "any paragraph of section 805(d)". (5) AMENDMENT OF SECTION 1033(a)(2).—Clause (ii) of section 103(a)(2)(A) is amended by striking out "subsection (c)" and 26 USC 1033. inserting in lieu thereof "subsection (b)". (6) AMENDMENT OF SECTION 1375(a).—Paragraph (2) of section 1375(a) is amended by striking out "such excess" each place it 26 USC 1375. appears and inserting in lieu thereof "such gain". (7) AMENDMENT OF SECTION I56l0b)(3).—Paragraph (3) of section 15610b) is amended by striking out "804(a)(4)" and inserting in 26 USC 1561. lieu thereof "804(a)(3)'^. (8) AMENDMENTS OF SECTION 1402.— (A) The last paragraph of section 1402(a) of the Internal 26 USC 1402. • Revenue Code of 1954 (definition of net earnings from self- employment) is amended by striking out "subsection (i)" each place it appears and inserting in lieu thereof "subsec- tion (h)". (B) Section 1402(c)(6) of such Code (definition of trade or business) is amended by striking out "subsection (h)" and inserting in lieu thereof "subsection (g)". (9) AMENDMENT TO SECTION 46(a).—Subparagraph (C) of section 1901(b)(1) of the Tax Reform Act of 1976 is amended by striking 26 USC 46.
92 STAT. 2942 PUBLIC LAW 9 5 - 6 0 0 — N O V . 6, 1 9 7 8 26 u s e 46. out "Section 46(a)(3)" a n d inserting in lieu thereof "Section 46(a)(4)". 26 u s e 6504. (10) AMENDMENT RELATING TO SECTION 6504.—Subparagraph (D) of section 1901(b)(37) of t h e Tax Reform Act of 1976 is amended by striking out "6515" a n d inserting in lieu thereof "6504". 26 u s e 37 note. (11) TERRITORIES.—Subsection (c) of section 1901 of t h e Tax Reform Act of 1976 (relating to Territories) is amended by striking out paragraph (1) thereof. 26 u s e 2011 (12) ESTATE AND GIFT TAXES EFFECTIVE DATE.—Subsection (c) of note. section 1902 of the Tax Reform Act of 1976 is amended to read as follows: "(c) EFFECTIVE DATES.— 26 u s e 2011 "(1) ESTATE TAX AMENDMENTS.—The a m e n d m e n t s made by note. paragraphs (1) through (8), a n d paragraphs (12) (A), (B), a n d (C), of subsection (a) a n d by subsection (b) shall apply in t h e case of estates of decedents dying after t h e date of the enactment of this Act, and the amendment made by paragraph (9) of subsection (a) shall apply in t h e case of estates of decedents dying after December 31,1970. 26 u s e 2501 "(2) GIFT TAX AMENDMENTS.—The amendments made by para- note. graphs (10), (11), and (12) (D) and (E) of subsection (a) shall apply with respect to gifts made after December 31,1976." 26 u s e 4973 (13) EFFECTIVE DATE FOR AMENDMENT MADE BY SECTION note. l904(a)(22)(A).—Notwithstanding section 1904(d) of t h e Tax Reform Act of 1976, t h e a m e n d m e n t made by section 1904(a)(22)(A) of such Act shall t a k e effect on t h e date of t h e enactment of such Act. (14) AMENDMENTS TO SOCIAL SECURITY ACT.— 42 u s e 402. (A) Section 202(v) of the Social Security Act is amended by striking out "section 1402(h)" each place it appears a n d inserting in lieu thereof "section 1402(g)". 42 u s e 405. (B) Section 205(p)(3) of such Act is amended by striking out "Secretary of t h e Treasury" a n d inserting in lieu thereof "Secretary of Transportation". 42 u s e 410. (C) Section 210(a)(6)(B)(v) of such Act is amended by strik- ing out "Secretary of t h e Treasury" a n d inserting in lieu thereof "Secretary of Transportation". 42 u s e 411. (D) Section 211(a)(2) of such Act is amended by striking out "(other t h a n interest described in section 35 of t h e Internal 26 u s e 35. Revenue Code of 1954)". 42 u s e 411. (E) Section 211(c)(6) of such Act is amended by striking out "section 1402(h)" a n d inserting in lieu thereof "section 1402(g)". (k) CAPITAL LOSS CARRYOVERS.—Clause (ii) of section 1212(a)(1)(C) 26 u s e 1212. (relating to capital loss carryovers for foreign expropriation losses) is amended by striking out "exceeding t h e loss y e a r " a n d inserting in lieu thereof "succeeding t h e loss year". (1) AMENDMENTS RELATING TO CERTAIN AIRCRAFT M U S E U M S . — (1) P a r a g r a p h (2) of section 4041(h) (defining aircraft museum) 26 u s e 4041. is amended by striking out " t e r m 'aircraft' m e a n s " and inserting in lieu thereof " t e r m 'aircraft museum' means". (2) Subsection (i) of section 4041 (as added by section 1904(a)(1)(C) of t h e T a x Reform Act of 1976) is redesignated a s subsection (j). 26 u s e 6427. (3) Subsection (d) of section 6427 (relating to repayment of t a x on fuels used by certain aircraft museums) is amended by
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2943 striking out "Secretary or his delegate" and inserting in lieu thereof "Secretary". (4) Paragraph (1) of section 7609(c) (defining summons to which 26 use 7609. section applies) is amended by striking out "6427(e)(2)" and inserting in lieu thereof "6427(f)(2)". (m) INSPECTION BY COMMITTEE OF CONGRESS.—Paragraph (2) of section 6104(a) (relating to inspection by committee of Congress) is 26 use 6104. amended by striking out "Section 6103(d)" and inserting in lieu 26 use 6103. thereof "Section 6103(f)". (n) AMENDMENT OF SECTION 6501.—Subsections (h), (j), and (o) of section 6501 are each amended by striking out "section 6213(b)(2)" 26 use 6501. and inserting in lieu thereof "section 6213(bX3)". (o) CONFORMING AMENDMENTS TO NEW DEFINITION OF TAXABLE INCOME.— (1) Subparagraph (A) of section 443(b)(2) (relating to computa- 26 use 443. tion based on 12-month period) is amended— (A) by striking out "taxable income" the second and third places it appears in clause (i) and inserting in lieu thereof "modified taxable income", and (B) by amending clause (ii) to read as follows: "(ii) the tax computed on the sum of the modified taxable income for the short period plus the zero bracket amount." (2) Paragraph (1) of section 443(b) is amended by striking out "gross income for such short period (minus the deductions allowed by this chapter for the short period, but only the adjusted amount of the deductions for personal exemptions)" and insert- ing in lieu thereof "modified taxable income for such short period". (3) Subsection (b) of section 443 is amended by adding at the end thereof the following new paragraph: "(3) MODIFIED TAXABLE INCOME DEFINED.—For purposes of this subsection the term 'modified taxable income' means, with respect to any period, the gross income for such period minus the deductions allowed by this chapter for such period (but, in the case of a short period, only the adjusted amount of the deductions for personal exemptions).' (4) The amendments made by this subsection shall apply to 26 use 443 taxable years beginning after December 31,1976. note. (p) CONFORMING AMENDMENTS TO REPEAL OF SECTION 317 OF TRADE EXPANSION ACT OF 1962.— 26 u s e 172. (1) AMENDMENTS OF SECTION 1 7 2 . — (A) Subparagraph (A) of section 172(b)(1) (relating to years 26 u s e 172. to which loss may be carried) is amended to read as follows: "(A) Except as provided in subparagraphs (D), (E), (F), and (G), a net operating loss for any taxable year shall be a net operating loss carryback to each of the 3 taxable years preceding the taxable year of such loss." (B) Paragraph (3) of section 172(b) (relating to special rules) is amended by striking out subparagraphs (A) and (B) and by redesignating subparagraphs (C), (D), and (E) as subpara- graphs (A), (B), and (C), respectively. (C) Subparagraph (B) of section 172(b)(3) (as redesignated by subparagraph (B)) is amended by striking out "subpara- graph (C)(iii)" each place it appears and inserting in lieu thereof "subparagraph (A)(iii)".
92 STAT. 2944 PUBLIC LAW 95-600—NOV. 6, 1978 (2) AMENDMENT OF SECTION 6501(h).—Subsection (h) of section 26 use 6501. 6501 (relating to net operating loss or capital loss carryback) is amended by striking out the last sentence. (3) AMENDMENT OF SECTION 6511(d)(2).—The first sentence of 26 use 6511. section 6511(d)(2)(A) (relating to special period of limitation for net operating loss or capital loss carrybacks) is amended by striking out "except that—" and all that follows down through the period at the end of such sentence and inserting in lieu thereof the following: "except that with respect to an overpay- ment attributable to the creation of, or an increase in a net operating loss carryback as a result of the elimination of exces- sive profits by a renegotiation (as defined in section 1481(a) 26 u s e 1481. (1)(A)), the period shall not expire before the expiration of the 12th month following the month in which the agreement or order for the elimination of such excessive profits becomes final." 26 u s e 172 (4) EFFECTIVE DATE.—The amendments made by this subsection note. shall apply with respect to losses sustained in taxable years ending after the date of the enactment of this Act. (q) CONFORMING AMENDMENT TO REPEAL OF SECTION 2 OF THE 20 u s e 1001 EMERGENCY INSURED STUDENT LOAN ACT OF 1969.— note. (1) IN GENERAL.—Paragraph (5) of section 103(d) (relating to 26 u s e 103. arbitrage bonds) is amended by striking out "section 2 of the 20 u s e 1001 Emergency Insured Student Loan Act of 1969" and inserting in note. lieu thereof "section 438 of the Higher Education Act of 1965". 20 u s e 1087-1 (2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 u s e 103 shall apply with respect to payments made by the Commissioner note. of Education after December 31,1976. 26 u s e 46 note (r) EFFECTIVE DATE.—Except as otherwise provided, the amend- ments made by this section shall take effect on October 4, 1976. TITLE VIII—AMENDMENTS RELATING TO SOCIAL SECURITY ACT SEC. 801. GRANTS TO STATES FOR SOCIAL SERVICES. 42 use 1397a. (a) AMOUNT To BE ALLOCATED TO STATES.—Section 2002(a)(2)(A) of the Social Security Act is amended— (1) by striking out "$2,500,000,000" and inserting in lieu thereof "the amount specified in clause (ii)"; (2) by inserting "(i)" after "(2)(A)"; and (3) by adding the following clause at the end thereof: "(ii) The amount specified for purposes of clause (i) is $2,500,000,000 for fiscal years prior to fiscal year 1979, $2,700,000,000 for fiscal year 1979, and $2,500,000,000 for fiscal years after fiscal year 1979.". 42 u s e 1397a (b) ADDITIONAL AMOUNT FOR C H I L D D A Y C A R E SERVICES IN FiSCAL note. YEAR 1979.—Section 3 of Public Law 94-401 is amended— (1) in the matter preceding paragraph (1) of subsection (a)— (A) by striking out the word "and" which appears after "1977,", and (B) by inserting after "1978," the following: "and the fiscal year ending September 30,1979,", (2) in subsection (a)(1), by adding after and below subparagraph (B) the following new subparagraph: "(C) 107.407 per centum of the amount of the limitation so imposed (as determined without regard to this section) in the case of such fiscal year ending September 30, 1979, or",
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2945 (3) in subsection (a)(2), by striking out "or either such fiscal year" and inserting in lieu thereof "or any such fiscal year", (4) in subsection Ot>), by striking out "or either fiscal year" and inserting in lieu thereof "or any fiscal year", (5) in subsections (c)(1) and (c)(2)(A), by striking out "or either fiscal year" and inserting in lieu thereof "or any fiscal year (other than the fiscal year ending September 30,1979)", (6) in subsection (d)(1)— (A) by striking out the word "or" which appears after "1977,", and (B) by inserting after "1978" the following: ", or the fiscal year ending September 30,1979", and (7) in subsection (d)(2), by striking out "for either such fiscal year" and inserting in lieu thereof "for any such fiscal year". SEC. 802. CHANGE IN PUBLIC ASSISTANCE MATCHING FORMULA, AND INCREASE IN AMOUNT OF PUBLIC ASSISTANCE DOLLAR LIMI- TATIONS, FOR PUERTO RICO, THE VIRGIN ISLANDS, AND GUAM IN FISCAL YEAR 1979. (a) PUBLIC ASSISTANCE MATCHING FORMULA.—Section 1118 of the 42 use 1318. Social Security Act is amended by adding at the end thereof the following new sentence: "For purposes of the preceding sentence, the term 'Federal medical assistance percentage' shall, in the case of Puerto Rico, the Virgin Islands, and Guam, mean 75 per centum when applied to quarters in the fiscal year ending September 30, 1979.". (b) DOLLAR LIMITATIONS.—Subsection (a) of section 1108 of such Act 42 USC 1308. is amended— (1) in paragraph (1)— (A) by striking out "or" at the end of clause (D), (B) by striking out the semicolon at the end of clause (E) and inserting in lieu thereof "other than the fiscal year 1979, or"; and (C) by adding at the end thereof the following new subparagraph: "(F) $72,000,000 with respect to the fiscal year 1979;", (2) in paragraph (2)— (A) by striking out "or" at the end of clause (D), (B) by striking out "; and" at the end of clause (E) and " inserting in lieu thereof "other than the fiscal year 1979, or", and (C) by adding at the end thereof the following new subparagraph:
92 STAT. 2946 PUBLIC LAW 95-600—NOV. 6, 1978 "(F) $2,400,000 with respect to the fiscal year 1979;", and (3) in paragraph (3)— (A) by striking out "or" at the end of clause (D), (B) by striking out the period at the end of clause (E) and inserting in lieu thereof "other than the fiscal year 1979, or", and (C) by adding at the end thereof the following new subparagraph: "(F) $3,300,000 with respect to the fiscal year 1979.". Approved November 6, 1978. LEGISLATIVE HISTORY: HOUSE REPORTS: No. 95-1445 (Comm. on Ways and Means) and 95-1800 (Coram. of Conference). SENATE REPORT No. 95-1263 (Comm. on Finance). CONGRESSIONAL RECORD, Vol. 124 (1978): Aug. 10, considered and passed House. Oct. 5, 6, 7, 9, 10, considered and passed Senate, amended. Oct. 15, Senate and House aigreed to conference report. o